Registration No. 333-65690
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON
FORM N-8B-2
--------
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Registrant)
--------
PRINCIPAL LIFE INSURANCE COMPANY
(Name of Depositor)
--------
711 High Street
Des Moines, Iowa 50309
(Address of Depositor's Principal Executive Offices)
--------
(515) 247-5111
(Depositor's Telephone Number, Including Area Code)
--------
Sarah H. Pitts
Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50309
(Name and Address of agent for service of process)
--------
Please send copies of all communications to
J. SUMNER JONES
Jones & Blouch
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007-0805
--------
Title and Amount of Securities: Principal Variable Universal Life Accumulator
Policy. (Pursuant to Rule 24F-2 under the Investment Company Act of 1940, the
Registrant elects to register an indefinite amount of securities being
registered.)
Approximate date of proposed public offering: As soon as practicable after the
effective date of this filing. The Registrant hereby amends its Registration
Statement under the Securities Act of 1933 on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross Reference Sheet
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS
1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of the Policy
5 Principal Life Insurance Company Variable Life Separate
Account
6(a) Not Applicable
6(b) Not Applicable
7 Not Required
8 Not Required
9 Legal Proceedings
10(a) Ownership, Beneficiary, Assignment
10(b) Calculation of Accumulated Value; Unit Values; Net
Investment Factor; Valuations in Connection with a
Policy; Participating Policy
10(c),10(d) Summary (Transfers; Policy Loans; Loan Accounts;
Surrenders, Charges and Deductions; Death Benefits and
proceeds; Maturity Proceeds)
10(e) Summary (Premiums, Termination and Reinstatement);
Policy Termination and Reinstatement (Policy
Termination; Reinstatement)
10(f) Other Matters (Voting Rights)
10(g)(1),10(g)(2), Principal Life Insurance Company Variable Life Separate
10(h)(1),10(h)(2) Account; General Provisions (Addition, Deletion or
Substitution of Investments)
10(g)(3),10(g)(4), Not Applicable
10(h)(3),10(h)(4)
10(i) Principal Life Insurance Company Variable Life Separate
Account, The Policy (Policy Values); General Provisions
(Addition, Deletion or Substitution of Investments);
General Provisions (Optional Insurance Benefits);
Federal Tax Matters
11 Principal Life Insurance Company Variable Life Separate
Account; General Provisions (Addition, Deletion or
Substitution of Investments)
12(a) Cover page
12(b) Not Applicable
12(c) Principal Life Insurance Company Variable Life Separate
Account; The Funds
12(d) Distribution of the Policy
12(e) Principal Life Insurance Company Variable Life Separate
Account
13(a) Principal Life Insurance Company Variable Life Separate
Account; Charges and Deductions
13(b),13(c), Summary (Charges and Deductions); Charges and
13(d),13(e),13(f),13(g) Deductions
14 The Policy (To buy a Policy); Distribution of the
Policy
15 Summary (Premiums); The Policy (Payment of Premiums;
Premium Limitations; Allocation of Premiums)
16 Summary (The Policy); Principal Life Insurance Company
Variable Life Separate Account; The Policy (Policy
Values); General Provisions (Addition, Deletion or
Substitution of Investments)
17(a),17(b),17(c) Captions referenced under Items 10(c), 10(d), 10(e),
and 10(i) above
18(a) Summary (Policy Value); The Policy (Policy Values)
18(b) Summary (Policy Value); The Policy (Policy Values)
18(c) Summary (Policy Loans); The Policy (Policy Values;
Policy Loans; Loan Account)
18(d) Not Applicable
19 Other Matters (Voting Rights; Statement of Values)
20(a),20(b) Principal Life Insurance Company Variable Life Separate
Account; General Provisions (Addition, Deletion or
Substitution of Investments); Other Matters (Voting
Rights)
20(c),20(d), Not Applicable
20(e),20(f)
21(a),21(b) Summary (Policy Loans); The Policy (Policy Values;
Policy Loans)
21(c) Summary (Policy Value; Policy Loans); The Policy
(Policy Values; Policy Loans)
22 General Provisions (The Contract; Incontestability)
23 Not Applicable
24 Summary
25 The Company
26 Summary (Investment Account); The Policy (Investment
Account Transfers)
27 The Company
28 Officers and Directors of Principal Life Insurance
Company
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
PRINCIPAL VARIABLE UNIVERSAL LIFE ACCUMULATOR
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
The Principal Variable Universal Life Accumulator Insurance Policy (the
"Policy") is issued by Principal Life Insurance Company (the "Company"). The
Policy provides:
. a death benefit payable on the death of the insured;
. policy loans; and
. a net surrender value which may be accessed by a partial or total surrender of
the Policy.
This prospectus provides information that you should know before buying a
Policy. It is accompanied by a current prospectus for the underlying mutual
funds that are available under the Policy. Please read these prospectuses
carefully and keep them for future reference.
The investment options available under the Policy are:
Principal Variable Contracts AIM V.I. Growth Fund
Fund, Inc.
Asset Allocation Account AIM V.I. Growth and Income Fund
Balanced Account AIM V.I. Value Fund
Bond Account American Century Variable Portfolios,
Inc.
Capital Value Account VP Income & Growth
Equity Growth Account VP Ultra
Government Securities Account Dreyfus Investment Portfolios
Growth Account Founders Discovery Portfolio
International Account Fidelity Variable Insurance Products
Fund II
International SmallCap Account Contrafund/(R)/ Portfolio
LargeCap Growth Account Fidelity Variable Insurance Products
Fund
LargeCap Stock Index Account Equity-Income Portfolio
MicroCap Account High Income Portfolio
MidCap Account INVESCO VIF - Dynamics Fund
MidCap Growth Account INVESCO VIF - Health Sciences Fund
MidCap Growth Equity Account INVESCO VIF - Small Company Growth
MidCap Value Account INVESCO VIF - Technology Fund
Money Market Account Janus Aspen Series
Real Estate Account Aggressive Growth Portfolio
SmallCap Account Putnam Variable Trust
SmallCap Growth Account Global Asset Allocation Fund
SmallCap Value Account Vista Fund
Utilities Account Voyager Fund
As in the case of other life insurance policies, it may not be in your best
interest to buy this Policy as a replacement for, or in addition to, existing
insurance coverage.
This Policy is NOT:
. a bank deposit
. endorsed by a bank or government agency
. federally insured
The Policy involves investment risk, including possible loss of principal.
You should be aware that the Securities and Exchange Commission ("SEC") has not
reviewed the Policy for its investment merit, and does not guarantee that the
information in this prospectus is accurate or complete. It is a criminal offense
to say otherwise.
This prospectus is dated November 19, 2001.
The Policy offered by this prospectus may not be available in all states. This
prospectus is not an offer to sell, or solicitation of an offer to buy, the
Policy in states in which the offer or solicitation may not be lawfully made. No
person is authorized to give any information or to make any representation in
connection with this Policy other than those contained in this prospectus.
1
TABLE OF CONTENTS
GLOSSARY................................................................4
SUMMARY.................................................................6
THE COMPANY.............................................................11
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT.........11
THE FUNDS...............................................................12
THE POLICY..............................................................19
DEATH BENEFITS AND RIGHTS...............................................26
CHARGES AND DEDUCTIONS..................................................30
THE FIXED ACCOUNT.......................................................33
POLICY TERMINATION AND REINSTATEMENT....................................34
OTHER MATTERS...........................................................35
GENERAL PROVISIONS......................................................37
OFFICERS AND DIRECTORS OF PRINCIPAL MANAGEMENT CORPORATION..............41
EXECUTIVE OFFICERS OF PRINCIPAL LIFE INSURANCE COMPANY (OTHER THAN DIRECTORS) 42
DIRECTORS OF PRINCIPAL LIFE INSURANCE COMPANY...........................42
DISTRIBUTION OF THE POLICY..............................................43
STATE REGULATION........................................................44
FEDERAL TAX MATTERS.....................................................44
FINANCIAL STATEMENTS....................................................47
APPENDIX A..............................................................177
APPENDIX B..............................................................184
3
GLOSSARY
ADJUSTMENT - change to your Policy resulting from an increase or decrease in
policy face amount or a change in: smoking status; death benefit option; rating
or riders.
ADJUSTMENT DATE - the monthly date on or next following the Company's approval
of a requested adjustment.
ATTAINED AGE - the insured's age on the birthday on or preceding the last policy
anniversary.
BUSINESS DAY - any date that the New York Stock Exchange is open for trading and
trading is not restricted.
DIVISION - a part of the Separate Account which invests in shares of a mutual
fund.
EFFECTIVE DATE - the date on which all requirements for issuance of a Policy
have been satisfied.
FIXED ACCOUNT - that part of the dollar amount in the Policy that reflects value
in the General Account of the Company.
GENERAL ACCOUNT - assets of the Company other than those allocated to any of our
Separate Accounts.
INSURED - the person named as the "insured" on the application for the Policy.
The insured may or may not be the owner.
LOAN ACCOUNT - that part of the dollar amount in the Policy that reflects the
value transferred from the division(s) and/ or Fixed Account as collateral for a
policy loan.
MONTHLY DATE - the day of the month which is the same day as the policy date.
Example: If the policy date is September 5, 2002, the first monthly date is
October 5, 2002.
MONTHLY POLICY CHARGE - the amount subtracted from the policy value on each
monthly date equal to the sum of the cost of insurance and of additional
benefits provided by any rider plus the monthly administration charge and asset
based charge in effect on the monthly date.
MUTUAL FUND - a registered open-end investment company, or a separate investment
account or portfolio thereof, in which a division invests.
NET POLICY VALUE - the policy value minus any policy loans and unpaid loan
interest.
NET PREMIUM - the gross premium less the deductions for the premium expense
charge. It is the amount of premium allocated to the divisions and/or Fixed
Account.
NET SURRENDER VALUE - surrender value minus any policy loans and unpaid loan
interest.
NOTICE - any form of communication received in our home office which provides
the information we need which may be in writing or another manner which we
approve in advance.
OWNER - the person, including joint owner, who owns all the rights and
privileges of this Policy.
POLICY DATE - the date from which monthly dates, policy years and policy
anniversaries are determined.
POLICY VALUE - an amount equal to the Fixed Account value plus the division
value(s) plus the Loan Account value.
POLICY YEAR - the one-year period beginning on the policy date and ending one
day before the policy anniversary and any subsequent one year period beginning
on a policy anniversary.
Example: If the policy date is September 5, 2002, the first policy year
ends on September 4, 2003. The first policy anniversary falls on
September 5, 2003.
PREMIUM EXPENSE CHARGE - the charge deducted from premium payments to cover a
sales charge, state and local premium taxes and federal taxes.
PRORATED BASIS - in the proportion that the value of a particular division or
the Fixed Account bears to the total value of all divisions and the Fixed
Account.
SURRENDER VALUE - policy value minus any surrender charge.
TARGET PREMIUM - a premium amount which is used to determine any applicable
surrender charge under a Policy. Target premiums are provided in Appendix B.
TOTAL FACE AMOUNT - policy face amount plus face amount of the supplemental
benefit rider, if any.
UNIT - the accounting measure used to calculate the value of the divisions.
VALUATION DATE - each day the New York Stock Exchange ("NYSE") is open.
VALUATION PERIOD - the period begins at the close of normal trading on the NYSE,
generally 4:00 p.m. E.T. on each valuation date and ends at the close of normal
trading of the NYSE on the next valuation date.
WRITTEN REQUEST - actual delivery to the Company at our office of a written
notice or request, signed and dated, on a form we supply or approve.
Your notices may be mailed to us at:
Principal Life Insurance Company
P O Box 9296
Des Moines, Iowa 50306-9296
5
SUMMARY
This prospectus describes a flexible variable universal life policy offered by
the Company. This is a brief summary of the Policy's features. More detailed
information follows later in this prospectus.
THE POLICY
The Policy is designed to provide you with:
. Insurance protection;
. a death benefit payable at the death of the insured; and
. flexibility in:
. the amount and frequency of premium payments (subject to certain
limitations); and
. the amount of life insurance proceeds payable under the Policy.
You may allocate your net premium payments to divisions and/or the Fixed
Account. All divisions may not be available in all states. A current list of
divisions available in your state may be obtained from a sales representative or
our home office.
Each division invests in shares of an underlying mutual fund. More detailed
information about the underlying mutual funds may be found in the current
prospectus for each underlying mutual fund.
The underlying mutual funds are NOT available to the general public directly.
The underlying mutual funds are available only as investment options in variable
life insurance policies or variable annuity contracts issued by life insurance
companies and qualified plans. Some of the underlying mutual funds have been
established by investment advisers that manage publicly traded mutual funds
having similar names and investment objectives. While some of the underlying
mutual funds may be similar to, and may in fact be modeled after publicly traded
mutual funds, you should understand that the underlying mutual funds are not
otherwise directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and of any underlying
mutual fund may differ substantially.
DIVISION THE DIVISION INVESTS IN:
- -------- ------------------------
Principal Variable Contracts Fund, Inc.
Asset Allocation Asset Allocation Account
Balanced Balanced Account
Capital Value Capital Value Account
Equity Growth Equity Growth Account
Government Securities Government Securities Account
Growth Growth Account
International International Account
International SmallCap International SmallCap Account
LargeCap LargeCap Growth Account
LargeCap Stock Index LargeCap Stock Index Account
MicroCap MicroCap Account
MidCap MidCap Account
MidCap Growth MidCap Growth Account
MidCap Growth Equity MidCap Growth Equity Account
MidCap Value MidCap Value Account
Money Market Money Market Account
Real Estate Real Estate Account
SmallCap SmallCap Account
SmallCap Growth SmallCap Growth Account
SmallCap Value SmallCap Value Account
Utilities Utilities Account
AIM V.I. Growth AIM V.I. Growth Fund
AIM V.I. Growth and Income AIM V.I. Growth and Income Fund
AIM V.I. Value AIM V.I. Value Fund
American Century VP Income & American Century VP Income & Growth Fund -
Growth Investors Class Shares
American Century VP Ultra American Century VP Ultra Fund -
Investor Class Shares
Dreyfus Investment Portfolios - Investor Class
Shares
DIP Founders Discovery Founders Discovery Portfolio
Fidelity Variable Insurance Products Fund II -
Initial Class Shares
Fidelity VIP Contrafund Contrafund Portfolio
Fidelity Variable Insurance Products Fund -
Initial Class Shares
Fidelity VIP Equity - Income Equity Income Portfolio
Fund
Fidelity VIP High Income High Income Portfolio
INVESCO VIF - Dynamics Fund INVESCO VIF - Dynamics Fund -
Investor Class Shares
INVESCO VIF - Health Sciences INVESCO VIF - Health Sciences Fund -
Fund Investor Class Shares
INVESCO VIF - Small Company INVESCO VIF - Small Company Growth -
Growth Fund Investor Class Shares
INVESCO VIF - Technology Fund INVESCO VIF - Technology Fund -
Investor Class Shares
Janus Aspen Series - Service Class Shares
Janus Aspen Aggressive Growth Aggressive Growth Portfolio
Putnam VT Global Asset Putnam VT Global Asset Allocation Fund -
Allocation IB Class Shares
Putnam VT Vista Putnam VT Vista Fund - IB Class Shares
Putnam VT Voyager Putnam VT Voyager Fund - IB Class Shares
6
PREMIUMS
The Company guarantees that the Policy will stay in force for the first five
policy years if you have paid enough premium to meet the no lapse guarantee
provision (see THE POLICY - Payment of Premiums).
Your initial net premium is allocated to the Money Market division at the end of
the valuation date we receive the premium. Twenty-one days after the effective
date of the Policy, the money is reallocated using your allocation instructions
(see THE POLICY - Allocation of Premiums). Any subsequent net premiums are
allocated to divisions and/or the Fixed Account.
POLICY VALUE
Your Policy value is:
. the value(s) of your division(s)
. plus the value of your Fixed Account
. plus the value of your Loan Account.
It is possible that the investment performance could cause a loss of the entire
amount allocated to the divisions. Without additional premium payments or
investments in the Fixed Account or a death benefit guarantee rider, this could
result in no death benefit upon the insured's death.
FIXED ACCOUNT
The Company guarantees that net premiums allocated to the Fixed Account earn
interest at a guaranteed rate. In no event will the guaranteed interest rate be
less than 3%, accrued daily, compounded annually.
7
TRANSFERS
You may transfer amounts between the divisions and/or the Fixed Account.
POLICY LOANS
You may borrow against your policy value any time the Policy has a net surrender
value. The minimum amount of a loan is $500.
LOAN ACCOUNT
When you take a policy loan, we establish a Loan Account. We charge interest on
your policy loan. An amount equal to the amount of the policy loan is
transferred to the Loan Account from your divisions and/or Fixed Account. The
Loan Account earns interest.
SURRENDERS (TOTAL AND PARTIAL)
Total Surrender
- ---------------
. You may surrender your Policy and receive the net surrender value.
. We calculate the net surrender value as of the business day we receive your
written request.
. A surrender charge is imposed on total surrenders within ten years of the
policy date (another date may apply if the Policy has been reinstated or the
policy face amount increased).
Partial Surrender
- -----------------
. After the first policy year, you may request a partial surrender of the net
surrender value.
. The minimum amount of partial surrender is $500.
. You may make up to two partial surrenders in a policy year the total of which
may not be greater than 75% of the net surrender value (as of the date of the
request for the first partial surrender in that policy year).
. The reduction in total face amount will be made as a last-in, first-out basis.
CHARGES AND DEDUCTIONS
Premium Expense Charge
- ----------------------
Deductions from premiums during each of the first five years (and with respect
to premiums made because of a policy face amount increase, during the first five
years after the increase) equal:
. sales charge of 3.00% of premiums paid
. plus 2.20% for state and local taxes
. plus 1.25% for federal taxes.
Deductions after the first five policy years (and after five years of a policy
face amount increase) include:
. 2.20% for state and local taxes
. plus 1.25% for federal taxes.
Surrender Charges
- -----------------
A surrender charge is imposed on policy termination or total surrender during
the first ten policy years. A policy face amount increase has its own surrender
charge period that begins on the adjustment date. (see CHARGES AND DEDUCTIONS -
Surrender Charge).
The surrender charge is a factor of:
. the Policy's target premiums;
. the policy holder's age and state of residence; and
. the length of time the Policy has been in effect.
8
Monthly Policy Charges
- ----------------------
. Administration charge:
. The monthly administrative charge is $25.00 per month during the first
policy year.
. After the first policy year, the current administrative charge is $10.00 per
month. This charge is guaranteed not to exceed $25.00 per month.
. Cost of insurance charge.
. Asset based charge:
. in the first ten policy years, 0.70% of your value(s) in the division(s) and
Fixed Account per year;
. after the tenth policy year, 0.20% of your value(s) in the division(s) and
Fixed Account per year.
. Optional benefit rider(s) charge(s).
Other Charges
- -------------
. Policy loan interest of 5.50% annually in policy years 1-10 and 3.8% annually
after policy year 10.
. Investment management fees and other operating expenses for the mutual fund
underlying a division.
. The annual expenses of Underlying Mutual Funds (as a percentage of average net
assets) as of December 31, 2000 were:
MANAGEMENT FEES 12B-1 OTHER TOTAL EXPENSES
UNDERLYING MUTUAL FUNDS AFTER REIMBURSEMENT FEES EXPENSES AFTER REIMBURSEMENT
----------------------- ------------------- ----- -------- -------------------
Principal Variable Contracts Fund
Asset Allocation Account 0.80% N/A 0.04% 0.84%
Balanced Account 0.58 N/A 0.02 0.60
Bond Account 0.49 N/A 0.02 0.51
Capital Value Account 0.59 N/A 0.01 0.60
Equity Growth Account 0.72 N/A 0.01 0.73
Government Securities Account 0.49 N/A 0.02 0.51
Growth Account 0.59 N/A 0.01 0.60
International Account 0.85 N/A 0.05 0.90
International SmallCap Account 1.20 N/A 0.24 1.44
LargeCap Growth Account 1.05 N/A 0.15 1.20/(1)(2)/
LargeCap Stock Index Account 0.29 N/A 0.11 0.40/(1)(2)/
MicroCap Account 0.86 N/A 0.20 1.06/(1)/
MidCap Account 0.60 N/A 0.02 0.62
MidCap Growth Account 0.85 N/A 0.11 0.96/(1)/
MidCap Growth Equity Account 0.75 N/A 0.34 1.09/(1)(2)/
MidCap Value Account 0.96 N/A 0.24 1.20/(1)/
Money Market Accounts 0.50 N/A 0.02 0.52
Real Estate Account 0.90 N/A 0.09 0.99
SmallCap Account 0.85 N/A 0.05 0.90
SmallCap Growth Account 1.00 N/A 0.02 1.02
SmallCap Value Account 0.92 N/A 0.24 1.16/(1)/
Utilities Account 0.60 N/A 0.03 0.63
AIM V.I. Growth Fund 0.61 N/A 0.22 0.83
AIM V.I. Growth and Income Fund 0.60 N/A 0.25 0.85
AIM V.I. Value Fund 0.61 N/A 0.23 0.84
American Century Variable Portfolios, Inc.
VP Income & Growth Fund 0.70 N/A 0.00 0.70
VP Ultra Fund 1.00/(3)/ N/A 0.00 1.00
Dreyfus Investment Portfolios
Founders Discovery Portfolio 0.62 0.25/(4)/ 0.63 1.50/(5)/
Fidelity Variable Insurance Fund II
Fidelity Contrafund 0.57 N/A 0.09 0.66
Fidelity Variable Insurance Fund
Fidelity Equity-Income 0.48 N/A 0.08 0.56
Fidelity High Income 0.58 N/A 0.10 0.68
INVESCO VIF - Dynamics Fund 0.75 N/A 0.34 1.09
INVESCO VIF - Health Sciences Fund 0.75 N/A 0.32 1.07
INVESCO VIF - Small Company Growth Fund 0.75 N/A 0.68 1.43
INVESCO VIF - Technology Fund 0.72 N/A 0.30 1.02
Janus Aspen Series
Aggressive Growth 0.65 0.25/(4)/ 0.02 0.92
Putnam Variable Trust
Putnam VT Global Asset Allocation Fund 0.65 0.25/(4)/ 0.12 0.94
Putnam VT Vista Fund 0.65 0.17/(4)/ 0.10 0.82
Putnam VT Voyager Fund 0.51 0.20/(4)/ 0.04 0.71
9
/(1)/ Principal Management Corporation voluntarily agreed to waive a portion
of its fee. Before the waiver, the total annual expenses through December
31, 2000 were: LargeCap Growth Account, 1.25%; LargeCap Stock Index Account,
0.46%; MicroCap, 1.20%; MidCap Growth, 1.01%; MidCap Growth Equity, 1.34%;
MidCap Value, 1.29%; and SmallCap Value Account, 1.34%.
/(2)/ Principal Management Corporation has voluntarily agreed to reimburse the
total annual expenses (if necessary) through April 30, 2002 so that they
will not exceed 1.20% for the LargeCap Growth Account; 0.40% for the
LargeCap Stock Index Account and 1.10% for the MidCap Growth Equity Account.
/(3)/ The fund has a stepped fee schedule. As a result, the management fee
will decrease as the assets increase, VP Ultra 1.00% of first $20 billion of
average net assets, and 0.95% of average net assets over $20 billion.
/(4)/ The Company and Princor Financial Services Corporation may receive a
portion of the underlying fund expenses for recordkeeping, marketing and
distribution services.
/(5)/ The Dreyfus Corporation has agreed, until December 31, 2001, to waive
receipt of a portion of its fees. Without the waiver, the fee would be
1.78%.
/(6)/ Actual annual class operating expenses were lower because a portion of
the brokerage commissions that the fund paid was used to reduce the fund's
expenses, and/or because through arrangements with the fund's custodian,
credits realized as a result of uninvested cash balances were used to reduce
a portion of the fund's custodian expenses. See the accompanying fund
prospectus for details.
/(7)/ Annual expenses are based upon expenses for the fiscal year ended
December 31, 2000, restated to reflect a reduction in the management fee for
the Janus Aspen Aggressive Growth Portfolio.
DEATH BENEFITS AND PROCEEDS
The death proceeds are paid to the beneficiary(ies) when the insured dies. Death
proceeds are calculated as of the date of death of the insured. The amount of
the death proceeds is:
. the death benefit plus interest (as explained in DEATH BENEFITS AND RIGHTS -
Death Proceeds);
. plus proceeds from any benefit riders on the life of the insured;
. minus policy loans and unpaid loan interest;
. minus any overdue monthly policy charges (Overdue monthly policy charges arise
when a policy is in a grace period and the policy value is insufficient to
cover the monthly cost of insurance or expense charge deductions).
The Policy provides for three death benefit options. You choose an option on
your application. Subject to certain conditions, you may change your option
after the Policy has been issued.
Death proceeds are paid in cash or applied under a benefit payment option. We
pay interest on the death proceeds from the date of death of the insured until
the date of payment or application under a benefit payment option.
MATURITY PROCEEDS
If the insured is living on the maturity date, we will pay you (the owner) an
amount equal to the net surrender value. The Policy then terminates. Maturity
proceeds are paid in cash lump sum or applied under a benefit payment option.
ADJUSTMENT OPTIONS
You may send us a written request to increase or decrease the policy face
amount. No request is approved if the Policy is in a grace period or if monthly
policy charges are being waived under a rider.
The minimum amount of an increase is $50,000 and is subject to our underwriting
guidelines in effect at the time you request the increase.
10
You may only request a decrease in policy face amount:
. after the first policy anniversary; and
. if the request does not decrease the policy face amount below $100,000.
TERMINATION AND REINSTATEMENT
The Policy terminates when:
. you make a total policy surrender;
. death proceeds are paid;
. maturity proceeds are paid; or
. you do not make additional premium payments (after the expiration of a 61-day
grace period).
Subject to certain conditions, you may reinstate a Policy that terminated
because of insufficient values.
TEN DAY EXAMINATION OFFER (FREE-LOOK PROVISION)
. You may return the Policy during the free-look period that is generally 10
days but may be longer in certain states.
. We return either all premiums paid or the policy value, whichever is required
by applicable state law.
THE COMPANY
The Company is a stock life insurance company with its home office at: Principal
Financial Group, Des Moines, Iowa 50306. It is authorized to transact life and
annuity business in all of the United States and the District of Columbia. The
Company is a wholly owned subsidiary of Principal Financial Services, Inc.,
which in turn, is a directly wholly owned subsidiary of Principal Financial
Group, Inc.
On June 24, 1879, the Company was incorporated under Iowa law as a mutual life
insurance company named Bankers Life Association. It changed its name to Bankers
Life Company in 1911 and then to Principal Mutual Life Insurance Company in
1986. The name change to Principal Life Insurance Company and reorganization
into a mutual holding company structure took place July 1, 1998. Effective
October 26, 2001 Principal Mutual Holding Company converted to a stock company
and Principal Financial Group, Inc. completed its initial public offering.
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
The Separate Account was established under Iowa law on November 2, 1987. It was
then registered as a unit investment trust with the Securities and Exchange
Commission ("SEC"). This registration does not involve SEC supervision of the
investments or investment policies of the Separate Account.
The income, gains, and losses, whether or not realized, of the Separate Account
are credited to or charged against the Separate Account without regard to other
income, gains, or losses of the Company. Obligations arising from the Policy,
including the promise to make benefit option payments, are our general corporate
obligations. However, the Policy provides that the portion of the Separate
Account's assets equal to the reserves and other liabilities under the Policy
are not charged with any liabilities arising out of any other business of the
Company.
The assets of each division invest in a corresponding underlying mutual fund.
New divisions may be added and made available. Divisions may also be eliminated
from the Separate Account following SEC approval.
11
THE FUNDS
The funds are mutual funds registered under the Investment Company Act of 1940
as open-end diversified management investment companies. The funds provide the
investment vehicles for the divisions. A full description of the funds, their
investment objectives, policies and restrictions, charges and expenses and other
operational information is contained in the attached prospectuses (which should
be read carefully before investing). Additional copies of these documents are
available from a sales representative or our home office.
The following is a brief summary of the investment objectives of each division:
ASSET ALLOCATION DIVISION
INVESTS IN: Principal Variable Contracts Fund - Asset Allocation
Account
INVESTMENT ADVISOR: Morgan Stanley Asset Management through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to generate a total investment return
consistent with the preservation of capital. The Account intends
to pursue a flexible investment policy in seeking to achieve
this investment objective.
BALANCED DIVISION
INVESTS IN: Principal Variable Contracts Fund - Balanced Account
INVESTMENT ADVISOR: (equity securities portion) Invista Capital
Management, LLC through a sub-advisory agreement
(fixed-income securities portion) Principal Capital Income
Investors, LLC through a sub-advisory agreement
INVESTMENT OBJECTIVE: to generate a total return consisting of
current income and capital appreciation while assuming
reasonable risks in furtherance of this objective.
BOND DIVISION
INVESTS IN: Principal Variable Contracts Fund - Bond Account
INVESTMENT ADVISOR: Principal Management Corporation
INVESTMENT OBJECTIVE: to provide as high a level of income as is
consistent with preservation of capital and prudent investment
risk.
CAPITAL VALUE DIVISION
INVESTS IN: Principal Variable Contracts Fund - Capital Value
Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to provide long-term capital of appreciation
and secondarily growth investment income. The Account seeks to
achieve its investment objectives through the purchase primarily
of common stocks, but the Account may invest in other
securities.
12
EQUITY GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - Equity Growth
Account
INVESTMENT ADVISOR: Morgan Stanley Asset Management through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to provide long-term capital appreciation by
investing primarily in growth-oriented common stocks of medium
and large capitalization U.S. corporations and, to a limited
extent, foreign corporations.
GOVERNMENT SECURITIES DIVISION
INVESTS IN: Principal Variable Contracts Fund - Government
Securities Account
INVESTMENT ADVISOR: Principal Capital Income Investors, LLC
through a sub-advisory agreement
INVESTMENT OBJECTIVE: to seek a high level of current income,
liquidity and safety of principal. The Account seeks to achieve
its objective through the purchase of obligations issued or
guaranteed by the United States Government or its agencies.
Account shares are not guaranteed by the United States
Government.
GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - Growth Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek growth of capital. The Account seeks
to achieve its objective through the purchase primarily of
common stocks, but the Account may invest in other securities.
INTERNATIONAL DIVISION
INVESTS IN: Principal Variable Contracts Fund - International
Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital by
investing in a portfolio of equity securities domiciled in any
of the nations of the world.
INTERNATIONAL SMALLCAP DIVISION
INVESTS IN: Principal Variable Contracts Fund - International
SmallCap Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in equity securities of non-United States companies
with comparatively smaller market capitalizations.
13
LARGECAP GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - LargeCap Growth
Account
INVESTMENT ADVISOR: Janus Capital Corporation through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
investing primarily in equity securities of growth companies
with market capitalization of greater than $10 billion.
LARGECAP STOCK INDEX DIVISION
INVESTS IN: Principal Variable Contracts Fund - LargeCap Stock
Index Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account attempts to mirror the investment results of the
Standard & Poor's 500 Index.
MICROCAP DIVISION
INVESTS IN: Principal Variable Contracts Fund - MicroCap Account
INVESTMENT ADVISOR: Goldman Sachs Asset Management through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in value and growth oriented companies with small
market capitalizations, generally less than $700 million.
MIDCAP DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to achieve capital appreciation by investing
primarily in securities of emerging and other growth-oriented
companies.
MIDCAP GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Growth
Account
INVESTMENT ADVISOR: Dreyfus Corporation through a sub-advisory
agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in growth stocks of medium market capitalization
companies.
MIDCAP GROWTH EQUITY DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Growth
Equity Account
INVESTMENT ADVISOR: Turner Investment Partners, Inc. through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks to achieve long-term growth of capital
by investing primarily in medium capitalization U.S. companies
with strong earnings growth potential.
14
MIDCAP VALUE DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Value
Account
INVESTMENT ADVISOR: Neuberger Berman Management, Inc. through a
sub-advisory agreement.
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
investing primarily in equity securities of companies with value
characteristics and market capitalizations in the $1 billion to
$10 billion range.
MONEY MARKET DIVISION
INVESTS IN: Principal Variable Contracts Fund - Money Market
Account
INVESTMENT ADVISOR: Principal Management Corporation
INVESTMENT OBJECTIVE: to seek as high a level of current income
available from short-term securities as is considered consistent
with preservation of principal and maintenance of liquidity by
investing all of its assets in a portfolio of money market
instruments.
REAL ESTATE DIVISION
INVESTS IN: Principal Variable Contracts Fund - Real Estate
Account
INVESTMENT ADVISOR: Principal Management Corporation
INVESTMENT OBJECTIVE: to seek to generate a high total return. The
Account will attempt to achieve its objective by investing
primarily in equity securities of companies principally engaged
in the real estate industry.
SMALLCAP DIVISION
INVESTS IN: Principal Variable Contracts Fund - SmallCap Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in equity securities of both growth and value oriented
companies with comparatively smaller market capitalizations.
SMALLCAP GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - SmallCap Growth
Account
INVESTMENT ADVISOR: Berger LLC through a sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in equity securities of growth companies with
comparatively smaller market capitalizations.
15
SMALLCAP VALUE DIVISION
INVESTS IN: Principal Variable Contracts Fund - SmallCap Value
Account
INVESTMENT ADVISOR: J.P. Morgan Investment Management, Inc.
through a sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital by
investing primarily in equity securities of small companies with
value characteristics and comparatively smaller market
capitalizations.
UTILITIES DIVISION
INVESTS IN: Principal Variable Contracts Fund - Utilities Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek to provide current income and
long-term growth of income and capital by investing primarily in
equity and fixed- income securities of companies in the public
utilities industry.
AIM V.I. GROWTH DIVISION
INVESTS IN: AIM V.I. Growth Fund
INVESTMENT ADVISOR: A I M Advisors, Inc.
INVESTMENT OBJECTIVE: seeks growth of capital.
AIM V.I. GROWTH AND INCOME DIVISION
INVESTS IN: AIM V.I. Growth and Income Fund
INVESTMENT ADVISOR: A I M Advisors, Inc.
INVESTMENT OBJECTIVE: seeks growth of capital with a secondary
objective of current income.
AIM V.I. VALUE DIVISION
INVESTS IN: AIM V.I. Value Fund
INVESTMENT ADVISOR: A I M Advisors, Inc.
INVESTMENT OBJECTIVE: seeks long-term growth of capital. Income is
a secondary objective.
AMERICAN CENTURY VP INCOME & GROWTH DIVISION
INVESTS IN: American Century Variable Portfolios, Inc. VP Income &
Growth
INVESTMENT ADVISOR: American Century Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks dividend growth, current income and
appreciation. The account will seek to achieve its investment
objective by investing in common stocks.
16
AMERICAN CENTURY VP ULTRA DIVISION
INVESTS IN: American Century Variable Portfolios, Inc. VP Ultra
INVESTMENT ADVISOR: American Century Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks long-term capital growth.
DIP FOUNDERS DISCOVERY DIVISION
INVESTS IN: Dreyfus Investment Portfolios Founders Discovery
Portfolio
INVESTMENT ADVISOR: Founders Asset Management LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks capital appreciation. To pursue this
goal, the portfolio invests primarily in equity securities of
small, U.S. based companies which are characterized as "growth"
companies.
FIDELITY VIP CONTRAFUND DIVISION
INVESTS IN: Fidelity VIP II Contrafund Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: to seek long-term capital appreciation.
FIDELITY VIP EQUITY - INCOME DIVISION
INVESTS IN: Fidelity VIP Equity - Income Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: to seek reasonable income by investing
primarily in income-producing equity securities.
FIDELITY VIP HIGH INCOME DIVISION
INVESTS IN: Fidelity VIP High Income Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: to seek a high level of current income by
investing primarily in high yielding, lower quality, fixed
income securities, while also considering growth of capital.
INVESCO VIF - DYNAMICS DIVISION
INVESTS IN: INVESCO VIF - Dynamics Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth.
17
INVESCO VIF - HEALTH SCIENCES DIVISION
INVESTS IN: INVESCO VIF - Health Sciences Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth.
INVESCO VIF - SMALL COMPANY GROWTH DIVISION
INVESTS IN: INVESCO VIF - Small Company Growth Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth.
INVESCO VIF - TECHNOLOGY DIVISION
INVESTS IN: INVESCO VIF - Technology Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth.
JANUS ASPEN AGGRESSIVE GROWTH DIVISION
INVESTS IN: Janus Aspen Series Aggressive Growth Portfolio
INVESTMENT ADVISOR: Janus Capital Corporation
INVESTMENT OBJECTIVE: seeks long-term growth of capital. It
pursues its objective by investing primarily in common stocks
selected for their growth potential, and normally invests at
least 50% of its equity assets in medium-sized companies.
PUTNAM VT GLOBAL ASSET ALLOCATION DIVISION
INVESTS IN: Putnam VT Global Asset Allocation Fund
INVESTMENT ADVISOR: Putnam Investment Management, Inc.
INVESTMENT OBJECTIVE: to seek a high level of long-term total
return consistent with preservation of capital.
PUTNAM VT VISTA DIVISION
INVESTS IN: Putnam VT Vista Fund
INVESTMENT ADVISOR: Putnam Investment Management, Inc.
INVESTMENT OBJECTIVE: to seek capital appreciation.
18
PUTNAM VT VOYAGER DIVISION
INVESTS IN: Putnam VT Voyager Fund
INVESTMENT ADVISOR: Putnam Investment Management, Inc.
INVESTMENT OBJECTIVE: to seek capital appreciation.
An Investment Advisor agrees to provide investment advisory services for a
specific underlying Mutual Fund. For these services, the Investment Advisor is
paid a fee.
The Company purchases and sells fund shares for the Separate Account at their
net asset value without any sales or redemption charge. The Separate Account has
divisions that correspond to interests in the underlying mutual funds. The
assets of each division are separate from the others. A division's performance
has no effect on the investment performance of any other division.
THE POLICY
The descriptions that follow are based on provisions of the Policy offered by
this prospectus.
TO BUY A POLICY
A completed application and required supplements must be submitted to us through
an agent or broker selling the Policy.
The minimum policy face amount when the Policy is originally issued is $100,000.
We reserve the right to increase or decrease the minimum policy face amount. The
increased minimum face amount would apply only to Policies issued after the
effective date of the increase.
To issue a Policy, we require that the insured be age 85 or younger as of the
policy date. Other underwriting restrictions may apply.
An applicant for the Policy must:
. furnish satisfactory evidence of insurability of the insured; and
. meet our insurance underwriting guidelines and suitability rules.
If you want insurance coverage to start at the time the application is
submitted, you must send a payment with your completed application. The amount
is shown on the policy illustration provided to you by your registered
representative. If this amount is submitted with the application, a conditional
receipt is given to you. The receipt acknowledges the initial payment and
details any interim conditional insurance coverage.
We reserve the right to reject any application or related premium if we
determine that our underwriting guidelines, suitability rules or procedures have
not been met.
Policy Date
- -----------
If we issue a Policy, a policy date is determined. Policies will not be dated on
the 29th, 30th or 31st of any month. Policies that would otherwise be dated on
these dates are dated on the 28th of the same month. Policies that are issued on
a COD basis and that would otherwise be dated on the 29th, 30th or 31st of a
month will be dated on the first day of the following month. Your policy date is
shown on the current data pages. Current data pages are the most recent policy
specification pages issued to a policy owner and located in the policy.
Upon specific request and our approval, your Policy may be backdated. The policy
date may not be more than six months prior to the date of application (or
shorter period if required by state law). Payment of at least the monthly policy
charges is required for the backdated period. Monthly policy charges are
deducted from the policy value for the backdated period.
19
Effective Date
- --------------
The Policy date and the effective date are the same unless:
. a backdated Policy date is requested; or
. a Policy is applied for on a COD basis (the effective date is the date we
received at least the monthly policy charge); or
. application amendments are required (the effective date is the date we
receive, review and accept amendments).
The insurance coverage does not take effect until you actually receive the
Policy. If the insured was to die before the owner actually receives the Policy,
there is no coverage under the Policy (coverage is determined solely under the
terms of conditional receipt, if any).
PAYMENT OF PREMIUMS
The amount and frequency of your premium payments affects the policy value, the
net surrender value and how long the Policy remains in force. After the initial
premium, you may determine the amount and timing of subsequent premium payments
within certain restrictions. The no lapse guarantee premium is shown on the
current data pages for your Policy. You must pay premiums to us at our home
office, Principal Life Insurance Company, 801 Grand (IDPC), Des Moines, Iowa
50392.
The planned periodic premium schedule reflects the premiums the policy owner
PLANS to pay at the time the contract is issued. Determination of whether the
no-lapse guarantee remains in effect is based on the ACTUAL premiums paid.
The no-lapse guarantee provision provides that, subject to satisfaction of the
no-lapse premium requirement, the policy will not terminate during the first
five policy years even if the policy's net surrender value is insufficient to
cover the monthly policy charge.
The no-lapse guarantee premium requirement requires that (a minus b) is greater
than or equal to (c) where:
. (a) is the sum of premiums paid;
. (b) is the sum of all existing policy loans, unpaid loan interest and partial
surrenders; and
. (c) is the sum of the no lapse guarantee monthly premiums since the policy
date to the most recent monthly date.
No-lapse guarantee premiums are per $1000 of face amount and vary by issue age,
gender and smoking status.* There are no policy charges for the no-lapse
guarantee.
The death benefit guarantee rider provides that, subject to satisfaction of the
death benefit guarantee requirement, the policy will not terminate prior to the
later of the insured attaining age 65 or 5 years from policy issue even if the
policy's net surrender value is insufficient to cover the monthly policy charge.
The death benefit guarantee premium requirement requires that (a minus b) is
greater than or equal to (c) where:
. (a) is the sum of premiums paid;
. (b) is the sum of all existing policy loans, unpaid loan interest and partial
surrenders; and
. (c) is the sum of the death benefit guarantee monthly premiums since the
policy date to the most recent monthly date.
Death benefit guarantee premiums are per $1000 of face amount and vary by issue
age and gender.* There are no policy charges for the death benefit guarantee.
The death benefit guarantee coverage period is limited to a maximum of 20 years
in New Jersey and Texas.
Preauthorized withdrawals may be set up on a monthly basis (to allow us to
automatically deduct premium payments from your checking or other financial
institution account). We send premium reminder notices to you if you establish
an annual, semiannual or quarterly premium payment schedule. You may also make
unscheduled payments to us at our home office or by payroll deduction (where
permitted by state law and approved by us).
* NOTE: The amounts of the no-lapse guarantee premium and the death benefit
guarantee premium are different due to the length of the guarantee periods
provided by each. The no-lapse guarantee premium
provides a guarantee that the Policy will not lapse during the first five
policy years. The death benefit guarantee premium provides a guarantee
that the Policy will not lapse during the later of the first five policy
years or the insured's age 65. Since the death benefit guarantee can
provide a longer no-lapse guarantee, the death benefit guarantee premium
is higher than no-lapse guarantee premium.
Using the same scenario (Male, Age 45, Preferred Nonsmoker, $250,000 Level
Death Benefit) as in the illustrations in Appendix A, the no-lapse
guarantee premium would be $2,333 and the death benefit guarantee premium
would be $3,755.
The insured can choose either the no-lapse guarantee or death benefit
guarantee at policy issue based upon the premium they willing to pay. If
the insured commits to paying at least the death benefit guarantee
premium, they will have a guaranteed no-lapse period that will run longer
than period under the no-lapse guarantee.
PREMIUM LIMITATIONS
In no event may the total of all premiums paid, both scheduled and unscheduled,
be more than the current maximum premium payments allowed for life insurance
under the Internal Revenue Code (the "Code"). If you make a premium payment that
would result in total premiums exceeding the current maximum limitation, we only
accept that portion of the payment that makes total premiums equal the maximum.
Any excess will be returned and no further premiums are accepted until allowed
by the current maximum premium limitations.
ALLOCATION OF PREMIUMS
Your initial net premium (and other net premiums we receive prior to the
effective date and twenty days after the effective date) is allocated to the
Money Market division at the end of the valuation date we receive the premium.
Twenty-one days after the effective date, the money is reallocated to the
divisions and/or to the Fixed Account according to your instructions. Generally,
the twenty day period corresponds to the maximum free-look period (except for
policies purchased in California by applicants over age 60) (see, Ten Day
Examination Offer (Free-Look Provision)). If the twenty-first day is not a
business day, the transfer will occur on the first business day following the
twenty-first day from the effective date.
Example: The effective date of your Policy is February 1st. Your net
premium is allocated to the Money Market division at the end of the
valuation period we receive the premium. At the close of business on
February 21st, the net premium is reallocated to the division and/or
Fixed Account that you selected.
Net premium payments received after the twenty-day period are allocated to the
divisions or to the Fixed Account according to your instructions. For each
division and the Fixed Account, the allocation percentage must be zero or a
whole number. The total of all the percentages for the divisions and the Fixed
Account must equal 100. The percentage allocation for future premium payments
may be changed, without charge, at any time by:
. sending a written request to us;
. if telephone privileges apply, calling us at 1-800-247-9988; or
. if internet privileges apply visiting www.principal.com.
The allocation changes are effective at the end of the valuation period in which
your new instructions are received.
TEN DAY EXAMINATION OFFER (FREE-LOOK PROVISION)
Under state law, you have the right to return the Policy for any reason during
the free-look period and receive your premiums paid. (If you apply for your
Policy in California, the amount refunded is described below.) Your request to
return the Policy must be in writing. The request and the Policy must be mailed
to us or returned to the agent no later (as determined by the postmark) than the
last day of the free-look period as shown below.
The free-look period is the later of:
. 10 days* after the Policy is delivered to you; or
. 45 days after you complete the application.
* Different free-look periods apply if your Policy is issued in: California
and you are age 60 and over (30 day free-look period); Colorado (15 day
free-look period); or Idaho or North Dakota (20 day free-look period).
21
If you applied for your Policy in California, the amount refunded is:
. the policy value as of the date we receive your written request for
cancellation;
. plus the premium expense charge(s) deducted from the premium;
. plus the monthly policy charge(s) deducted from the policy value.
NOTES:
. See GENERAL PROVISIONS - Delay of Payments.
. If the purchase of this Policy is a replacement for another life insurance
policy or an annuity contract, different free-look periods may apply. We
reserve the right to keep the initial premium payment in the Money Market
division longer than 20 days to correspond to the free-look periods of a
particular state's replacement requirements.
POLICY VALUES
Your policy value is equal to the sum of the values in your divisions, Fixed
Account and Loan Account (see THE FIXED ACCOUNT and THE POLICY - Loan Account).
The policy value also reflects your premium payments, partial surrenders, policy
loans and the policy expenses deducted from the divisions and the Fixed Account.
There is no guaranteed minimum division value. Its value reflects the investment
experience of the division that you choose. It is possible that the investment
performance could cause a loss of the entire amount allocated to the divisions.
Without additional premium payments or investments in the Fixed Account or a
death benefit guarantee rider, this could result in no death benefit upon the
insured's death.
At the end of any valuation period, your value in a division is:
. the number of units you have in the division
. multiplied by the value of a unit in the division.
The number of units is the total of units purchased by allocations to the
division from:
. your initial premium payment (less premium expense charges);
. plus subsequent premium payments (less premium expense charges);
. plus transfers from another division or the Fixed Account
minus units sold:
. for partial surrenders from the division;
. as part of a transfer to another division, the Fixed Account or the Loan
Account; and
. to pay monthly policy charges.
Unit values are calculated each valuation date. To calculate the unit value of a
division, the unit value from the previous valuation date is multiplied by the
division's net investment factor for the current valuation period. The number of
units does not change due to a change in unit value.
The net investment factor measures the performance of each division. The net
investment factor for a valuation period is calculated as follows:
[{the share price of the underlying mutual fund at the end of the valuation
period before that day's transactions
plus
the per share amount of the dividend (or other distribution) made by the mutual
fund during the valuation period}
divided by
the share price of the underlying mutual fund at the end of the previous
valuation period after that day's transactions].
When an investment owned by an underlying mutual fund pays a dividend, the
dividend increases the net asset value of a share of the underlying mutual fund
as of the date the dividend is recorded. As the net asset value of a share of an
underlying mutual fund increases, the unit value of the corresponding division
also reflects an increase. Payment of a dividend under these circumstances does
not increase the number of units you own in the division.
22
DIVISION TRANSFERS
You may request an unscheduled transfer or set up a periodic transfer by:
. sending us a written request;
. calling us if telephone privileges apply (1-800-247-9988); or
. visiting www.principal.com (if internet privileges apply).
You must specify the dollar amount or percentage to transfer from each division.
The transfer is made, and the values determined as of the end of the valuation
period in which we receive your request. In states where allowed, we reserve the
right to reject transfer instructions from someone providing them for multiple
Policies for which he or she is not the owner.
You may not make a transfer to the Fixed Account if:
. a transfer has been made from the Fixed Account to a division within six
months; or
. immediately after the transfer, the Fixed Account value would be more than
$1,000,000 (without our prior approval).
Unscheduled Transfers
- ---------------------
You may make unscheduled transfers from a division to another division or to the
Fixed Account. The minimum transfer amount is the lesser of $100 or the value of
your division.
Scheduled Transfers (dollar cost averaging (DCA))
- -------------------------------------------------
You may elect to have automatic transfers made on a periodic basis without an
additional charge.
. The amount of the transfer is:
. the dollar amount you select (the minimum is the lesser of $100 or the value
of the division); or
. a percentage of the division value as of the date you specify (other than
the 29th, 30th or 31st).
. You select the transfer date (other than the 29th, 30th or 31st) and the
transfer frequency (annually, semi-annually, quarterly or monthly).
. If the selected date is not a valuation date, the transfer is completed on the
next valuation date.
. The value of the division must be equal to or more than $2,500 when your
scheduled transfers begin.
. Transfers continue until your interest in the division has a zero balance or
we receive notice to stop them.
. We reserve the right to limit the number of divisions from which simultaneous
transfers are made. In no event will it ever be less than two.
FIXED ACCOUNT TRANSFERS
Transfers from your investment in the Fixed Account to your division(s) are
subject to certain limitations. You may transfer amounts by making either a
scheduled or unscheduled Fixed Account transfer. You may not make both a
scheduled and unscheduled Fixed Account transfer in the same policy year. In
states where allowed, we reserve the right to reject transfer instructions from
someone providing them for multiple Policies for which he or she is not the
owner.
Unscheduled Transfers
- ---------------------
You may make one unscheduled Fixed Account transfer to a division(s) within the
30 day period following each policy anniversary.
. You must specify the dollar amount or percentage to be transferred (not to
exceed 25% of the Fixed Account value as of the most recent policy
anniversary).
. The minimum transfer amount must be at least $100 (or the entire value of your
Fixed Account if less).
. If your Fixed Account value is less than $1,000, you may transfer up to 100%
of your Fixed Account.
23
Scheduled Transfers (dollar cost averaging (DCA))
- -------------------------------------------------
You may make scheduled transfers on a monthly basis from the Fixed Account to
your division(s) without an additional charge as follows:
. The value of your Fixed Account must be equal to or more than $2,500 when your
scheduled transfers begin. We reserve the right to change this amount but it
will never be more than $10,000.
. The amount of the transfer is:
. the dollar amount you select (minimum of $100); or
. a percentage of the Fixed Account value (the maximum amount of the transfer
is 2% of the Fixed Account value as of the specified date) as of the date
you specify which may be:
. the later of the policy date or most recent policy anniversary date; or
. the date the Company receives your request.
. Transfers occur on a date you specify (other than the 29th, 30th or 31st of
any month).
. If the selected date is not a valuation date, the transfer is completed on the
next valuation date.
Scheduled transfers continue until your value in the Fixed Account has a zero
balance or we receive your notice to stop them. You may change the amount of the
transfer once each policy year by:
. sending us a written request;
. calling us if telephone privileges apply (1-800-247-9988); or
. visiting www.principal.com (if internet privileges apply).
If you stop the transfers, you may not start them again until six months after
the last scheduled transfer.
AUTOMATIC PORTFOLIO REBALANCING (APR)
APR allows you to maintain a specific percentage of your policy value in your
divisions over time.
Example: You may choose to rebalance so that 50% of your policy values are
in the Bond division and 50% in the Capital Value division. At the
end of the specified period, market changes may have caused 60% of
your value to be in the Bond division and 40% in the Capital Value
division. By rebalancing, units from the Bond division are sold and
the proceeds are used to purchase units in the Capital Value division
so that 50% of the policy values are once again invested in each
division.
You may elect APR at the time of application or after the Policy has been
issued.
APR transfers:
. do not begin until the expiration of the free-look period;
. are done without charge;
. may be done on the frequency you specify:
. quarterly APR transfers may be done on a calendar year or policy year basis,
. semiannual or annual APR transfers may only be done on a policy year basis.
. may be done:
. if telephone privileges apply, by calling us at 1-800-247-9988;
. mailing us your written request;
. faxing your request to us; or
. if internet privileges apply, by visiting www.principal.com.
. The transfers are made at the end of the next valuation period after we
receive your instruction.
. APR is not available for values in the Fixed Account. If you have scheduled
transfers from divisions, APR is not available for those divisions.
24
POLICY LOANS
While your Policy is in effect and has a net surrender value, you may borrow
money from us with the Policy as the security for the policy loan.
. The minimum policy loan is $500.
. The maximum amount you may borrow is 90% of the net surrender value as of the
date we process the policy loan.
. If telephone privileges apply, you may request a policy loan of $5,000 or less
by calling us at 1-800-247-9988. If you do not have telephone privileges or
are requesting a policy loan of more than $5,000, your request must be made in
writing.
. Generally, policy loan proceeds are sent within five business days from the
date we receive your request (see GENERAL PROVISIONS - Delay of Payments).
. Requests for policy loans from any joint owner are binding on all joint
owners.
LOAN ACCOUNT
When a policy loan is taken, an amount equal to the loan is transferred from
your division(s) and Fixed Account to your Loan Account. Loan Accounts are part
of our General Account. You may instruct us on the proportions to be taken from
your accounts. If you do not provide such instruction, the loan amount is
withdrawn in the same proportion as the allocation used for the most recent
monthly policy charge. Any loan interest due and unpaid is transferred in the
same manner.
Your Loan Account earns interest from the date of transfer. The loan account
interest rate is 4.00% per year. Interest accrues daily and is paid at the end
of the policy year.
You are charged interest on your policy loan. During the first ten policy years,
the interest rate is 5.50% per year. After policy year ten, the interest rate is
3.80% per year. Interest accrues daily and is due and payable at the end of the
policy year. If interest is not paid when due, it is added to the loan amount.
Adding unpaid interest to the policy loan amount causes additional amounts to be
withdrawn from your Fixed Account and/or division(s) and transferred to the Loan
Account. Withdrawals are made in the same proportions as described above.
Policy loans and unpaid loan interest reduce your net surrender value. If the
net surrender value is less than the monthly policy charges on a monthly date,
the 61-day grace period provision applies (see POLICY TERMINATION AND
REINSTATEMENT - Policy Termination).
While the Policy is in force and before the insured dies, policy loans and loan
interest may be repaid as follows:
. policy loans may be repaid totally or in part;
. repayments are allocated to the division(s) and Fixed Account in the
proportions used for allocation of premium payments; and
. payments that we receive that are not designated as premium payments are
applied as loan repayments if a policy loan is outstanding.
A policy loan generally has a permanent effect on policy values. If a policy
loan had not been made, the policy value would reflect the investment experience
of the division(s) and the interest credited to the Fixed Account. In addition,
policy loans and unpaid loan interest are subtracted from:
. death proceeds at the death of the insured;
. surrender value upon total surrender or termination of a Policy; and
. maturity proceeds payable at maturity.
If the Policy lapses with an outstanding loan balance, there may be tax
consequences. Please consult a competent tax advisor.
25
SURRENDERS
You must send us a written request for any surrender. The request must be signed
by all owners, irrevocable beneficiary(ies), if any, and any assignees.
Total surrender
- ---------------
You may surrender the Policy on or before the maturity date while the Policy is
in effect. You receive the net surrender value at the end of the valuation
period during which we receive your surrender request. The net surrender value
is the total of the values of your divisions plus your Fixed Account plus your
Loan Account minus any applicable surrender charge, policy loans and unpaid loan
interest (see CHARGES AND DEDUCTIONS - Surrender Charge).
. We reserve the right to require you to return the Policy to us prior to making
any payment though this does not affect the amount of the cash surrender
value.
. If the total surrender is within ten years of the policy date or a policy face
amount increase, a surrender charge is imposed.
Partial surrender
- -----------------
After the first policy anniversary and prior to the maturity date, you may
surrender a part of the Fixed Account and/or division value by sending us a
written request. The surrender is effective as of the end of the valuation
period during which we receive your written request for surrender. You may not
request more than two partial surrenders in each policy year.
The minimum amount of a partial surrender is $500. The total of your two partial
surrenders during a policy year may not be greater than 75% of the net surrender
value (as of the date of the request for the first partial surrender in that
policy year). The partial surrender may not decrease the policy face amount to
less than $100,000.
Your policy value is reduced by the amount of the surrender. We surrender units
from the division and/or values from the Fixed Account to equal the dollar
amount of the surrender request. The surrender is deducted from your Fixed
Account value and/or your division(s) according to the surrender allocation
percentages you specify. If surrender allocation percentages are not specified,
we use your monthly policy charge allocation percentages. Reduction of the total
face amount is made on a last-in, first-out basis. No surrender charge is
imposed on a partial surrender.
If Option 1 death benefit is in effect, the total face amount is reduced by the
amount of the partial surrender. If Option 3 death benefit is in effect, then
the total face amount may be reduced by the amount of the partial surrender if
the total partial surrenders exceed the premiums paid. Any reduction of the
total face amount will be made on a last in, first out basis. Total and partial
surrenders from the Policy are generally paid within five business days of our
receipt of your written request for surrender. Certain delays in payment are
permitted (see GENERAL PROVISIONS - Delay of Payments).
DEATH BENEFITS AND RIGHTS
DEATH PROCEEDS
If the insured dies before the maturity date, we pay death proceeds.
. We must receive proof of the death of the insured and all other required
documents.
. Payments are made to your named beneficiary(ies) under your designated death
benefit option (see GENERAL PROVISIONS - Beneficiary).
The payments are made in cash lump sum or under a benefit payment option
selected by the beneficiary(ies). Death proceeds are calculated as of the date
of the insured's death and include:
. the death benefit described below;
. plus proceeds from any benefit rider on the insured's life;
. minus policy loans and unpaid loan interest;
. minus any overdue monthly policy charges if the insured died during a grace
period;
. plus interest on the death proceeds as required by state law.
26
DEATH BENEFIT OPTION
You choose death benefit Option 1, Option 2 or Option 3 at the time of
application.
Option 1
- --------
The death benefit is the greater of 1) the Policy's current face amount, or 2)
the Policy value on the date of death multiplied by the applicable percentage.
The applicable percentage is 250% for an insured currently age 40 or below. The
percentage declines with increasing ages. The death benefit remains level unless
the applicable percentage of Policy value exceeds the current face amount (in
which case the death benefit varies as the Policy value varies).
Illustration of Option 1
- ------------------------
Assume that the insured's current age is under age 40, there is no loan amount
and the Policy face amount is $500,000.
Under Option 1, the death benefit must be equal or greater than 250% of the
Policy value. If the Policy value is more than $200,000, the death benefit is
greater than $500,000. Each additional dollar added to the Policy value above
$200,000 increases the death benefit by $2.50. If the Policy value exceeds
$200,000 and increases by $100 because of investment performance or premium
payments, the death benefit increases by $250.
Similarly, if the Policy value exceeds $200,000, each dollar taken out of the
Policy value reduces the death benefit by $2.50. For example, if the Policy
value is reduced from $500,000 to $450,000 because of partial surrenders,
charges or negative investment performance, the death benefit is reduced from
$1,250,000 to $1,125,000. However, if at any time the Policy value multiplied by
the applicable percentage is less than the face amount, the death benefit equals
the current face amount of the Policy.
Option 2
- --------
The death benefit is equal to the greater of 1) the current face amount plus the
Policy value on the date of death, or 2) the Policy value on the date of death
multiplied by the applicable percentage.
Illustration of Option 2
- ------------------------
Assume that the insured's current age is under 40, there is no loan amount and
the Policy face amount is $500,000.
A Policy with a Policy value of $100,000 has a death benefit of $600,000
($500,000 plus $100,000). A Policy value of $300,000 has a death benefit of
$800,000 ($500,000 plus $300,000). The death benefit however must be at least
250% of the Policy value. As a result, if the Policy value exceeds $333,334, the
death benefit is greater than the face amount plus Policy value. Each additional
dollar of Policy value above $333,334 increases the death benefit by $2.50. If
the Policy value exceeds $333,334 and increases by $100 because of investment
performance or premium payments, the death benefit increases by $250.
If the Policy value exceeds $333,334, each dollar taken out of the Policy value
reduces the death benefit by $2.50. For example, the Policy value is reduced
from $400,000 to $340,000 because of partial surrenders, charges or negative
investment performance, the death benefit is reduced from $1,000,000 to
$850,000. However, if the Policy value multiplied by the applicable percentage
is less than the Policy face amount plus the Policy value, then the death
benefit is the current face amount plus the Policy value.
NOTE: The $333,334 policy value referred to in the death benefit option 2
example is the cut-off above which the policy owner's death benefit is
derived by the operation of the death benefit corridor. Taking a $333,334
policy value times the 2.50 corridor factor in the example results in
essentially the same $833,334 death benefit as determined by the death
benefit option 2 calculation of the $500,000 face amount plus the $333,334
policy value.
27
Option 3
- --------
The death benefit is equal to the greater of 1) the current face amount plus the
premiums paid minus the withdrawals up to the date of death, or 2) the Policy
value on the date of death multiplied by the applicable percentage.
Illustration of Option 3
- ------------------------
Assume that the insured's current age is under 40, there is no loan amount and
the Policy face amount is $500,000.
A Policy with a Policy value of $100,000, premiums paid to date of $60,000 and
withdrawals to date of $20,000 has a death benefit of $540,000 ($500,000 plus
$60,000 minus $20,000). A Policy with a Policy value of $300,000, premiums paid
to date of $225,000 and withdrawals to date of $75,000 has a death benefit of
$650,000 ($500,000 plus $225,000 minus $75,000). The death benefit however must
be at least 250% of the Policy value. As a result, if the Policy value exceeds
$260,000, the death benefit is greater than the face amount plus premiums paid
to date minus withdrawals to date. Each additional dollar of Policy value above
$260,000 increases the death benefit by $2.50. If the Policy value exceeds
$260,000 and increases by $100 because of investment performance or premium
payments, the death benefit increases by $250.
If the Policy value exceeds $260,000, each dollar taken out of the Policy value
reduces the death benefit by $2.50. For example, the Policy value is reduced
from $300,000 to $240,000 because of charges or negative investment performance,
the death benefit is reduced from $750,000 to $600,000. However, if the Policy
value multiplied by the applicable percentage is less than the Policy face
amount plus the premiums paid to date minus the withdrawals to date, then the
death benefit is the current face amount plus the premiums paid to date minus
the withdrawals to date.
NOTE: The $260,000 policy value referred to in the death benefit option 3
example is the cut-off above which the policy owner's death benefit is
derived by the operation of the death benefit corridor. Taking a $260,000
policy value times the 2.50 corridor factor in the example results in the
same $650,000 death benefit as determined by the death benefit option 3
calculation of the $500,000 face amount plus the $225,000 of premium less
the $75,000 of withdrawals.
The applicable percentage lowers as the insured's age increases. If the current
age of the insured in the illustration is 50 (rather than age 40), the
applicable percentage would be 185%.
APPLICABLE PERCENTAGES*
(For ages not shown, the applicable percentages decrease by a pro-rata portion
for each full year.)
INSURED'S ATTAINED AGE PERCENTAGE
---------------------- ----------
40 and under 250
45 215
50 185
55 150
60 130
65 120
70 115
75 through 90 105
95 and older 100
* We reserve the right, where allowed by law, to change or delete the
percentages as required by changes to the Internal Revenue Code.
28
CHANGE IN DEATH BENEFIT OPTION
You may change the death benefit option on or after the first policy
anniversary. Up to two changes are allowed per policy year. Your request must be
made in writing and approved by us. The effective date of the change will be the
monthly date that coincides with or next follows our approval. Changing the
death benefit option changes the future cost of insurance.
If you change from Option 1 to Option 2, the new total face amount is the old
total face amount decreased by the policy value (as of the effective date of the
change). The change is not allowed if it would result in a policy face amount of
less than $100,000. A change from Option 1 to Option 2 may require evidence of
insurability for the new death benefit if required by our underwriting
guidelines in place at the time of your request.
If you change from Option 2 to Option 1, the new total face amount is the old
total face amount increased by the policy value (as of the effective date of the
change). A change from Option 2 to Option 1 does not require evidence of
insurability.
If you change from Option 3 to Option 1, the new total face amount is the old
total face amount increased by premiums paid less withdrawals made (as of the
effective date of the change). If you change from Option 3 to Option 2, the new
policy face amount is the old policy face amount adjusted by premiums paid (less
withdrawals made) decreased by the policy value (as of the effective date of the
change). A change from Option 3 to Option 2 may require evidence of insurability
for the new death benefit if required by our underwriting guidelines in place at
the time of your request.
You may not change from Option 1 to Option 3 or from Option 2 to Option 3.
ADJUSTMENT OPTIONS
Increase in policy face amount
- ------------------------------
You may request an increase at any time provided that the Policy is not in a
grace period, and monthly policy charges are not being waived under a rider. The
minimum increase in policy face amount is $50,000. A policy face amount increase
request made in the first 60 policy months will increase the no lapse guarantee
premium for the remainder of the 60 months.
The request must be made on an adjustment application. The application must be
signed by the owner(s) and the insured. If your request is not approved, no
changes are made to your Policy.
We will approve your request if:
. the insured is alive at the time of your request; and
. the attained age of the insured is 85 or less at the time of the request; and
. we receive evidence satisfactory to us that the insured is insurable under our
underwriting guidelines in place at the time of your request.
The increase in policy face amount is in a risk classification determined by us.
The adjustment is effective on the monthly date on or next following our
approval of your request. No free-look period applies to an increase in policy
face amount.
We calculate an "adjustment conditional receipt premium deposit" (payment that
accompanies request) based on your request for an increase. If you make a
payment with your adjustment application of at least as much as the adjustment
conditional receipt premium deposit, we issue a conditional receipt. The
conditional receipt shows receipt of the payment and outlines any interim
insurance coverage.
Any payment made with the adjustment application is held in our General Account
without interest. If we approve the adjustment, on the effective date of the
adjustment, the amount of the premium payment being held minus the premium
expense charge, is moved to the divisions and/or Fixed Account. Your current
premium allocation percentages are used to make this allocation.
29
The cost of insurance charge will increase in the event of an increase in a
policy's face amount. If there is insufficient value to pay the higher charges
after an increase in face amount, the policy will lapse, unless the no-lapse or
death benefit guarantees are in effect. The entire policy would be at risk of
lapsing, not just the incremental increase in face amount.
Decrease in policy face amount
- ------------------------------
After the first policy year, you may request a decrease in the policy face
amount. No transaction fee is imposed on decreases in the policy face amount. A
decrease in face amount lowers the cost of insurance charges. A decrease is
requested as follows:
. the request must be made on an adjustment application;
. the application must be signed by the owner(s);
. the policy is not in a grace period;
. monthly policy charges are not being waived under a waiver rider;
. the minimum amount of the decrease is $25,000; and
. the decrease may not reduce the policy face amount below $100,000.
CHARGES AND DEDUCTIONS
We make certain charges and deductions to support operation of the Policy and
the Separate Account. Some charges are deducted from premium payments when they
are received. Other charges are deducted on a monthly basis while others are
deducted at the time a Policy is surrendered or terminated.
PREMIUM EXPENSE CHARGE
When we receive your premium payment, we deduct a premium expense charge.
Deductions from premiums during each of the first five years and with respect to
premiums made because of a policy face amount increase, during the first five
years after the increase, equal:
. sales load of 3.00% of premiums paid
. plus 2.20% for state and local taxes
. plus 1.25% for federal taxes.
Deductions from premiums after the fifth policy year (and after five years of a
policy face amount increase) equal:
. 2.20% for state and local taxes
. plus 1.25% for federal taxes.
The sales load is intended to pay us for distribution expenses. These expenses
include commissions paid to registered representatives, printing of prospectuses
and sales literature, and advertising. Sales loads charged in any policy year
are not necessarily related to actual distribution expenses incurred in that
year. We expect that the majority of these expenses are incurred in the early
years of a Policy and that any deficit is made up during the life of the Policy.
If distribution expenses are more than the sales load (including the sales load
portion of the surrender charge), the deficit is made up from our other assets
or surplus in our General Account.
MONTHLY POLICY CHARGE
The monthly policy charge is intended to cover certain charges and expenses
incurred in connection with the Policy. Deductions are made up of:
. a charge for the cost of insurance;
. a charge for any optional benefit added by rider(s);
. a monthly administration charge; and
. an asset based charge (applies to the divisions, the Fixed Account, and the
Loan Account).
30
On the policy date and each monthly date thereafter, we deduct the charge from
your policy value in the divisions and/ or Fixed Account (but not your Loan
Account). The deduction is made using your current monthly policy charge
allocation percentages. Your allocation percentages may be:
. the same as allocation percentages for premium payments;
. determined on a prorated basis; or
. determined by any other allocation method which we agree upon.
For each division and/or the Fixed Account, the allocation percentage must be
zero or a whole number. The total of the allocation percentages must equal 100.
Allocation percentages may be changed without charge. A request for an
allocation change is effective on the date we receive the request. If we cannot
follow your instructions because of insufficient value in any Fixed Account
and/or the division, the monthly policy charge is deducted on a prorated basis.
COST OF INSURANCE CHARGE
Your monthly cost of insurance charge is (a) multiplied by (b) minus (c) where:
. (a) is the cost of insurance rate described below divided by 1,000;
. (b) is the death benefit at the beginning of the policy month, divided by
1.0024663 (the sum of one plus the monthly guaranteed fixed account interest
rate); and
. (c) is the policy value at the beginning of the policy month calculated as if
the monthly policy charge was zero.
The cost of insurance rate is based on the gender*, issue age, duration since
issue, smoking status, and risk classification of the insured. We determine the
rate based on our expectation as to investment earnings, expenses, mortality and
persistency experience. Changes in the cost of insurance rates apply to all
individuals of the same age, gender* and risk classification. The rate for the
policy face amount will never exceed the rate shown in the Table of Guaranteed
Maximum Cost of Insurance Rates in the Policy. The guaranteed maximum cost of
insurance rate is based on the gender*, attained age and risk classification of
the insured.
Different cost of insurance rates may apply to policy face amount increases and
to supplemental benefit riders. The cost of insurance for the increase is based
on the insured's gender*, issue age, duration since issue, smoking status, and
risk classification at the time of the increase. The guaranteed maximum cost of
insurance rate for the increase is based on the insured's gender*, attained age
and risk classification at the time of the increase.
* The cost of insurance rate for Policies issued in states which require
unisex pricing or in connection with employment related insurance and
benefit plans is not based on the gender of the insured.
ADMINISTRATION CHARGE
Current charges
- ---------------
. The current monthly administrative charge is $25.00 per month during the first
policy year.
. After the first policy year, the administrative charge is $10.00 per month.
Guaranteed administration charges
- ---------------------------------
In all policy years, the guaranteed maximum monthly administration charge is
$25.00 per month.
The monthly administration charge reimburses us for the administrative expenses
of the Policy and the Separate Account. Administration expenses do not include
the cost of selling the Policy. They do include the costs of: processing
applications; conducting medical examinations; determining insurability;
establishing and maintaining records; processing death benefit claims and policy
changes, reporting and overhead. We do not expect to collect more from the
administration charges than our actual accumulated expenses.
For Policies sold in New York, both the current and guaranteed administration
charges are $8.00 per month.
31
ASSET BASED CHARGE
The expense risk we assume is that expenses incurred in issuing and
administering the policy are greater than we estimated. The Company expects to
make a profit from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policies.
Each month during the first ten policy years, we deduct a charge for these risks
at an annual rate of 0.70% of the value(s) of your division(s) and of the Fixed
Account. Each month thereafter, we deduct a charge at an annual rate of 0.20% of
the value(s) of your division(s) and of the Fixed Account.
We reserve the right to increase the annual rate but guarantee that the maximum
annual rate will not exceed 0.70%. If we increase the annual rate, the increase
will only apply to policies issued on or after the date of the increase.
SURRENDER CHARGE
Surrender charges vary based on the target premium of the policy and the
premiums paid. The charge applies only during the first ten policy years unless
there is a policy face amount increase. A policy face amount increase has its
own surrender charge period that begins on the adjustment date. The total
surrender charge on the policy is the sum of the surrender charges for the
policy face amount at issue and each policy face amount increase. The surrender
charge is not affected by any decrease in policy face amount or any change in
policy face amount resulting from a change of death benefit options.
The surrender charge compensates us for expenses relating to the sale of the
Policy. These include commissions, advertising and printing of prospectuses and
sales literature. The surrender charge also reimburses us for expenses incurred
in issuing the Policy. These expenses include processing the application
(primarily underwriting) and setting up records. This charge is intended to
cover the average anticipated issue expenses for all Policies. There may not be
a direct relationship between the amount of the charge for any given Policy and
the amount of expenses attributable to that Policy.
The surrender charge on an early surrender or Policy lapse is significant. As a
result, you should purchase a Policy only if you have the financial capacity to
keep it in force for a substantial period of time.
Surrender charge percentage
- ---------------------------
The surrender charge is (a) multiplied by (b) multiplied by (c) where:
. (a) is the target premium shown in Appendix B;
. (b) is the percentage shown below which varies by issue age (or age at the
time of a face amount increase) and state in which the Policy was issued:
OTHER THAN
ISSUE AGE NEW YORK NEW YORK
--------- -------- --------
0-60 100% 100%
61-65 94 100
66-70 89 100
71-75 84 100
76-80 65 85
81-85 53 70
. (c) is the applicable surrender charge percentage shown below:
SURRENDER CHARGE PERCENTAGE TABLE
---------------------------------
NUMBER OF YEARS SINCE POLICY THE FOLLOWING PERCENTAGE OF
DATE AND/OR THE ADJUSTMENT DATE SURRENDER CHARGE IS PAYABLE
------------------------------- ---------------------------
1 through 5 100.00%
6 95.24
7 85.71
8 71.43
9 52.38
10 28.57
11 and later 00.00
32
OTHER CHARGES
The assets of each division are used to purchase shares in a corresponding
mutual fund at net asset value. The net asset value of the mutual fund reflects
management fees and operating expenses already deducted from the assets of the
mutual fund. Current management fees and operating expenses for each mutual fund
are shown in the section entitled THE FUNDS.
SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS
Where permitted by state law, Policies may be purchased under group or sponsored
arrangements as well as on an individual basis. A group arrangement is a program
under which a trustee, employer or similar entity purchases Policies covering a
group of individuals on a group basis. A sponsored arrangement is a program
under which an employer permits group solicitation of its employees or an
association permits group solicitation of its members for the purchase of
Policies on an individual basis.
Charges and deductions may be reduced for Policies purchased under a group or
sponsored arrangement including waiver of premium sales load and waiver of
surrender charge. Reductions may be available to:
. employees, officers, directors, agents and immediate family members of the
group or sponsored arrangement, and
. employees of agents of the Company and its subsidiaries.
Reductions are made under our rules in effect on the date a Policy application
is approved and are based on certain criteria (size of group, expected number of
participants, anticipated premium payments).
Generally, the sales contacts and effort, administrative costs and mortality
cost per Policy vary based on the size of the arrangement, the purpose for which
the Policies are purchased and certain characteristics of the members. The
amount of the reduction and the criteria for reducing the charges and deductions
reflect: a) our reduced sales effort and administrative costs; and b) the
different mortality experience expected from sales to arrangements.
We may modify, on a uniform basis, both the amounts of reductions and the
criteria for qualification. Reductions in these charges will not discriminate
unfairly against any person, including the affected owners and all other Policy
owners with policies funded with the Separate Account.
In addition, groups and persons buying Policies under a sponsored arrangement
may apply for flexible underwriting. If flexible underwriting is granted, the
cost of insurance charge may increase because of higher anticipated mortality
experience. Flexible underwriting programs currently available include: batch
underwriting, expanded nonmedical underwriting and guaranteed issue
underwriting.
THE FIXED ACCOUNT
You may allocate net premiums and transfers from your division(s) to the Fixed
Account. The Fixed Account is part of our General Account. Because of exemptions
and exclusions contained in the Securities Act of 1933 and the Investment
Company Act of 1940, the Fixed Account has not been registered under these acts.
Neither the Fixed Account nor any interest in it is subject to the provisions of
these acts. As a result the SEC has not reviewed the disclosures in this
prospectus relating to the Fixed Account. However, disclosures relating to the
Fixed Account are subject to generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
prospectuses. You may obtain more information regarding the Fixed Account from
our home office or from a sales representative.
Our obligations with respect to the Fixed Account are supported by our General
Account. Subject to applicable law, we have sole discretion over the investment
of assets in the General Account.
We guarantee that net premiums allocated to the Fixed Account accrue interest
daily at an effective annual rate of 3% compounded annually. We may, in our sole
discretion, credit interest at a higher rate.
33
The value of your Fixed Account on any valuation day is:
. net premiums allocated to the Fixed Account
. plus transfers from the division(s)
. plus interest credited to the Fixed Account
. minus surrenders, surrender charges and monthly policy charges
. minus transfers to the Loan Account
. minus transfers to the division(s).
We may defer payment of proceeds payable out of the Fixed Account for a period
of up to six months.
POLICY TERMINATION AND REINSTATEMENT
POLICY TERMINATION
No Lapse Guarantee
- ------------------
If the net surrender value on any monthly date is less than the monthly policy
charge, a 61-day grace period begins. However, during the first 60 policy
months, the Policy will stay in force if (a minus b) is greater than or equal to
(c) where:
. (a) is the sum of the premiums paid;
. (b) is the sum of all existing policy loans, unpaid loan interest, partial
surrenders and transactions charges; and
. (c) is the sum of the no lapse guarantee premiums since the policy date to the
most recent monthly date.
After the first 60 policy months, making premium payments under your planned
periodic premium schedule does not guarantee that your Policy will stay in force
unless:
. your Policy's net surrender value is at least equal to the monthly policy
charge on the current monthly date; or
. the death benefit guarantee rider is in effect.
Grace Period
- ------------
The grace period begins when we send you a notice of pending lapse. The notice:
. is mailed to your last known post office address;
. shows the minimum payment required to keep the Policy in force; and
. shows the 61-day period during which we will accept the required payment.
During the first 60 policy months, the minimum required payment is the greater
of (a) or (b) where:
. (a) is three monthly policy charges divided by (1 minus the maximum premium
expense charge), and
. (b) is three no lapse guarantee monthly premiums.
The determination of three monthly policy charges is made by taking three times
the "failed" monthly deduction that could not be made due to insufficient policy
value. The maximum premium expense charge is the guaranteed maximum percent of
premium expense charge which is 6.45% in all policy years (3% sales charge, 2.2%
state and local taxes, 1.25% federal taxes).
After the first 60 policy months, the minimum required premium is (a) plus (b)
where:
. (a) is the amount by which the surrender charge is more than the Policy value
on the monthly date on or immediately preceding the start of the grace period,
and
. (b) is three monthly policy charges divided by (1 minus the maximum premium
expense charge).
This payment is intended to a) reimburse us for the monthly policy charges
during the grace period, and b) provide enough policy value to pay the monthly
policy charge on the first monthly date after the grace period. To cover past
due policy charges, if the grace period ends before we receive the minimum
payment, we keep any remaining value in the Policy.
Due to possible adverse market fluctuations, there is no guarantee that the
amount requested at the beginning of the grace period is enough to pay the
monthly policy charges as they are processed. If the net surrender value is not
at least as much as the monthly policy charge on any monthly date, a new 61-day
grace period starts.
34
The Policy is in force during a grace period. If we do not receive the required
payment, the Policy terminates as of the monthly date on or immediately
preceding the start of the grace period. If the insured dies during a grace
period, policy proceeds are reduced by:
. all monthly policy charges due and unpaid at the death of the insured; and
. any policy loans and unpaid loan interest.
The Policy also terminates when:
. you make a total policy surrender;
. death proceeds are paid; and
. maturity proceeds are paid.
When the Policy terminates, all of the owners' policy rights and privileges end.
REINSTATEMENT
Subject to certain conditions, you may reinstate a Policy that terminated
because of insufficient value. The Policy may only be reinstated:
. prior to the maturity date and while the insured is alive;
. upon our receipt of satisfactory evidence of insurability (according to our
underwriting guidelines then in effect);
. if you make a payment of a reinstatement premium; and
. if the application for reinstatement is mailed to us within three years of the
Policy termination (in some states, we must provide a longer period of time
for Policy reinstatement).
The reinstatement premium is calculated using the formulas found above in POLICY
TERMINATION AND REINSTATEMENT - Policy Termination - Grace Period. If a policy
loan or loan interest was unpaid when the Policy terminated, the policy loan
must be reinstated or repaid (loan interest is not collected for the period the
Policy was terminated).
We do not require payment of monthly policy charges during the period the Policy
was terminated. Reinstatement is effective on the next monthly date following
our approval of the reinstatement application. Premiums received with your
reinstatement application are held without interest until the reinstatement
date. They are allocated to your selected division(s) and/or Fixed Account on
the reinstatement date. We will use the premium allocation percentages in effect
at the time of termination of the Policy unless you provide new allocation
instructions. The reinstated Policy has the same policy date as the original
Policy. Your rights and privileges as owner(s) are restored upon reinstatement.
If you reinstate your Policy and then it is totally surrendered, a surrender
charge may be imposed. The charge, if any, is calculated based on the number of
years the Policy was in force. The period of time during which the Policy was
terminated is not credited toward the number of policy years to make this
calculation.
OTHER MATTERS
VOTING RIGHTS
We vote division shares at shareholder meetings of the underlying mutual funds.
We follow the voting instructions received from people having the voting
interest in the division shares.
You have a voting interest under a Policy. You have one vote for each $100 of
policy value in the division(s). Fractional votes are allocated for amounts less
than $100. The number of votes on which you have the right to instruct us is
determined as of a date established by the mutual fund for setting the
shareholders eligible to vote.
According to procedures adopted by the mutual fund, voting instructions are
solicited by a written proxy statement before a shareholder meeting. We vote
other underlying mutual fund shares, for which no voting instructions are
received, in the same proportion as the shares for which we receive voting
instructions. Underlying mutual fund shares held in our General Account are
voted in proportion to instructions that are received with respect to the
participating contracts.
35
If we determine, under applicable law, that underlying mutual fund shares need
not be voted according to the instructions received, we may vote underlying
mutual fund shares held in the Separate Account in our own right.
We may, when required by state insurance regulatory authorities, disregard
voting instructions. This may be done if the instructions would require shares
to be voted to:
. change a subclassification or investment objective of the underlying mutual
fund;
. disapprove an investment advisory contract of the underlying mutual fund; or
. approve changes initiated by an owner in the investment policy or investment
advisor of the underlying mutual fund if we reasonably disapprove of the
changes.
The change would be disapproved only if:
. the proposed change is contrary to state law;
. prohibited by state regulatory authorities; or
. we determine the change is inconsistent with the investment objectives of the
mutual fund.
If we disregard voting instructions, a summary of the action and the reason for
the actions will be included in the next semiannual report from the underlying
mutual fund to owners.
STATEMENT OF VALUES
You receive an annual statement at the end of each policy year. The statement
will show:
. current death benefit;
. current policy value and surrender value;
. all premiums paid since the last statement;
. all charges since the last statement;
. any policy loans and unpaid loan interest;
. any partial surrenders since the last statement;
. the number of units and unit value;
. total value of each of your divisions and the Fixed Account;
. designated beneficiary(ies); and
. all riders included in the Policy.
You will also receive a statement as of the end of each calendar quarter. At any
time, you may request a current statement by telephoning 1-800-247-9988.
We also send you the reports required by the Investment Company Act of 1940 (as
amended).
SERVICES AVAILABLE VIA THE INTERNET AND TELEPHONE
If you elect internet and/or telephone privileges, instructions for the
following transactions may be given to us via the internet or telephone:
. change in allocations of future premium payments;
. change in allocation of the monthly policy charge;
. change to your APR instructions;
. change to your DCA instructions;
. unscheduled division and/or Fixed Account transfers; and
. policy loan (not available via the internet) (loan proceeds are mailed to the
owner's address of record).
36
Your instructions:
. telephone instructions may be given by calling us at 1-800-247-9988 between 7
a.m. and 9 p.m. Central Time on any day that the NYSE is open;
. internet instructions may be given by accessing us at www.principal.com (for
security purposes, you need a personal identification number (PIN) to use any
of the new Internet services, including viewing your policy information
on-line. If you don't have a PIN, you can obtain one at www.principal.com);
. must be received by us before the close of the NYSE (generally 3:00 p.m.
Central Time) to be effective the day you call;
. are effective the next valuation day if not received until after the close of
the NYSE; and
. from one joint owner are binding on all joint owners.
Direct Dial
- -----------
You may receive information about your Policy from our Direct Dial system
between 7 a.m. and 9 p.m. Central Time, Monday through Saturday. The Direct Dial
number is 1-800-247-9988. Through this automated system, you can:
. obtain information about unit values and policy values;
. initiate certain changes to your Policy; and
. change your personal identification number.
Instructions from one joint owner are binding on all joint owners.
Although neither the Separate Account nor the Company is responsible for the
authenticity of telephone transaction or internet requests, the Separate Account
and the Company reserve the right to refuse telephone and/or internet orders.
You are liable for a loss resulting from a fraudulent telephone or internet
order that we reasonably believe is genuine. We use reasonable procedures to
assure instructions are genuine. If the procedures are not followed, we may be
liable for loss due to unauthorized or fraudulent transactions. The procedures
for telephone instructions include: recording all telephone instructions,
requesting personal identification information (name, phone number, social
security number, birth date, etc.) and sending written confirmation to the
owner's address of record. The procedures for internet and Direct Dial include
requesting the same personal identification information as well as your PIN,
logging all internet and Direct Dial activity and sending written transaction
confirmations to the owner's address of record.
GENERAL PROVISIONS
THE CONTRACT
The entire contract is made up of applications, amendments, riders and
endorsements attached to the Policy, current data pages, copies of any
supplemental applications, amendments, endorsements and revised Policy or data
pages which are mailed to you. No statement, unless made in an application, is
used to void a Policy (or void an adjustment in the case of an adjustment
application). Only our corporate officers can agree to change or waive any
provisions of a Policy. Any change or waiver must be in writing and signed by an
officer of the Company.
OPTIONAL INSURANCE BENEFITS
Subject to certain conditions, you may add one or more optional insurance
benefits to your Policy. These include but are not limited to:
. supplemental benefit rider (yearly renewable term)
. extended coverage rider
. death benefit guarantee rider (only available at the time the Policy is issued
and is not available in conjunction with the supplemental benefit rider)
Detailed information concerning optional insurance benefits may be obtained from
an authorized agent or our home office. NOT ALL OPTIONAL INSURANCE BENEFITS ARE
AVAILABLE IN ALL STATES. The cost, if any, of an optional insurance benefit is
deducted as part of your monthly policy charge.
Supplemental Benefit Rider
- --------------------------
This rider provides an additional face amount and an additional death benefit.
37
Death Benefit Guarantee Rider
- -----------------------------
This rider provides that if the rider premium is paid, the Policy does not lapse
even if the net surrender value is not enough to pay the monthly policy charges
on a monthly date. This rider is automatically made a part of the Policy if the
planned periodic premium is equal to or greater than the death benefit guarantee
premium or if the first year paid premium is large enough to satisfy the death
benefit guarantee premium requirement for one year.
There are no policy charges for the death benefit guarantee rider. Rather, a
required minimum premium level is defined for the rider to remain in effect. The
death benefit guarantee premium requirement is met if:
. the sum of all premiums paid
. minus any partial surrenders
. minus any policy loans and unpaid loan interest is at least as much as the sum
of death benefit guarantee monthly premiums from the policy date to the most
recent monthly date. Your most recent death benefit guarantee premium is shown
on your current data page.
The death benefit guarantee premium is based on the issue age, gender (where
permitted by law) and risk classification of the insured. The monthly death
benefit guarantee premium is considered to be zero for any month that deductions
are being waived. This premium may change if:
. the policy face amount is changed;
. the death benefit option is changed;
. a rider is added or deleted; or
. an adjustment is made to your Policy.
As a result of a change, an additional premium may be required to satisfy the
new death benefit guarantee premium.
If on any monthly date, the death benefit guarantee premium requirement is not
met, we send you a notice stating the premium required to reinstate the rider.
If the premium required to maintain the guarantee is not received in our home
office before the expiration of the 61-day grace period (which begins when the
notice is mailed), the death benefit guarantee is no longer in effect and the
rider is terminated. If the rider terminates, it may not be reinstated.
Extended Coverage Rider
- -----------------------
This rider, which is automatically included on each Policy, allows the Policy to
remain in force beyond the maturity date as long as there is cash value in the
Policy. Upon your request, we keep the Policy in force until the death of the
Insured or full surrender. The death benefit will be equal to the amount
described in the "Death Benefit Option" section. There is no charge for this
rider and at maturity the Policy automatically changes to death benefit option 1
and no future death benefit option changes are allowed.
MISSTATEMENT OF AGE OR GENDER
If the age or, where applicable, gender of the insured has been misstated, we
adjust the death benefit payable under your Policy to reflect the amount that
would have been payable at the correct age and gender.
ASSIGNMENT
You may assign your Policy. Each assignment is subject to any payments made or
action taken by the Company prior to our notification of the assignment. We
assume no responsibility for the validity of any assignment.
An assignment must be made in writing and filed with us at our home office. The
irrevocable beneficiary(ies), if any, must authorize any assignment in writing.
Your rights, as well as those of the beneficiary(ies), are subject to any
assignment on file with us.
OWNERSHIP
You may change your ownership designation at any time. Your request must be in
writing and approved by us. After approval, the change is effective as of the
date you signed the request for change. We reserve the right to require that you
send us the Policy so that we can record the change.
38
Unless changed, the owner(s) is as named in the application. The owner(s) may
exercise every right and privilege of the Policy, subject to the rights of any
irrevocable beneficiary(ies) and any assignee(s).
All rights and privileges of ownership of a Policy end if the Policy is
surrendered, death or maturity proceeds are paid, or if the grace period ends
without our receiving the payment required to keep the Policy in force. The
rights and privileges end as of the monthly date on or immediately preceding the
start of the grace period.
If an owner dies before the Policy terminates, the surviving owner(s), if any,
succeeds to that person's ownership interest, unless otherwise specified. If all
owners die before the Policy terminates, the Policy passes to the estate of the
last surviving owner. With our consent, you may specify a different arrangement
for contingent ownership.
BENEFICIARY
You have the right to name a beneficiary(ies) and contingent beneficiary(ies).
This may be done as part of the application process or by sending us a written
request. Unless you have named an irrevocable beneficiary, you may change your
beneficiary designation by sending us a written request. After approval, the
change is effective as of the date you signed the request for change. We reserve
the right to require that you send us the Policy so that we can record the
change.
If no beneficiary(ies) survives the death of the insured, the death proceeds are
paid to the owner(s) or the estate of the owner(s) in equal percentages unless
otherwise specified.
BENEFIT INSTRUCTIONS
While the insured is alive, you may give us instructions for payment of death
proceeds under one of the benefit options of the Policy. The instructions or
changes to the instructions must be in writing. If you change the
beneficiary(ies), prior benefit instructions are revoked.
BENEFIT PAYMENT OPTIONS
While the insured is alive, you may arrange for death proceeds to be paid in a
lump sum or under one of several fixed benefit payment options. These choices
are also available if the Policy is surrendered or matures.
. Special Benefit Arrangement
A specially designed benefit option may be arranged with our approval.
. Proceeds left at interest
We hold the amount of the benefit on deposit. Interest payments are
made annually, semiannually, quarterly or monthly as selected.
. Fixed Income
We pay income of a fixed amount for a fixed period (not exceeding 30
years).
. Life Income
We pay income during a person's lifetime. A minimum guaranteed period
may be used.
. Joint and Survivor Life Income
We pay income during the lifetime of two people and continue until
the death of the survivor. This option includes a minimum guaranteed
period of 10 years.
. Joint and Two-thirds Survivor Life Income
We pay an income during the lifetime of two people and two-thirds of
the original amount during the remaining lifetime of the survivor.
Interest at a rate set by us, but never less than required by state law, will be
applied to calculate the above benefit payment options.
RIGHT TO EXCHANGE POLICY
During the first 24 months after the effective date (except during a grace
period), you have the right to make an irrevocable, onetime election to transfer
all of your division values to the Fixed Account. No charge is imposed on this
transfer.
39
Your request must be in writing and be signed by the owner(s). The request must
be postmarked or delivered to our home office before the end of the 24-month
period. The transfer is effective when we receive your written request.
NON-PARTICIPATING POLICY
The Policies do not share in any divisible surplus of the Company.
INCONTESTABILITY
We will not contest the insurance coverage provided by the Policy, except for
any increases in face amount, after the Policy has been in force during the
lifetime of the insured for a period of two years from the policy date. Any
policy face amount increase has its own two-year contestability period that
begins on the effective date of the adjustment. In many states, the time limit
in the incontestability period does not apply to fraudulent misrepresentations.
SUICIDE
Death proceeds are not paid if the insured dies by suicide, while sane or
insane, within two years of the policy date (or two years from the date of
policy face amount increase with respect to such increase). In the event of the
suicide of the insured within two years of the policy date, our only liability
is a refund of premiums paid, without interest, minus any policy loans and
unpaid loan interest and partial surrenders. In the event of suicide within two
years of a policy face amount increase, our only liability with respect to that
increase is a refund of the cost of insurance for the increase. This amount will
be paid to the beneficiary(ies).
DELAY OF PAYMENTS
Payment due to exercise of your rights under the free-look provision,
surrenders, policy loans, death or maturity proceeds, and transfers to or from a
division are generally made within five days after we receive your instructions
in a form acceptable to us. This period may be shorter where required by law.
However, payment of any amount upon return of the Policy, total or partial
surrender, policy loan, death, maturity or the transfer to or from a division
may be deferred during any period when the right to sell mutual fund shares is
suspended as permitted under provisions of the Investment Company Act of 1940.
The right to sell shares may be suspended during any period when:
. trading on the NYSE is restricted as determined by the SEC or when the NYSE is
closed for other than weekends and holidays, or
. an emergency exists, as determined by the SEC, as a result of which:
. disposal by a fund of securities owned by it is not reasonably practicable;
. it is not reasonably practicable for a fund to fairly determine the value of
its net assets; or
. the SEC permits suspension for the protection of security holders.
If payments are delayed and your instruction is not canceled by your written
instruction, the amount of the transaction is determined the first valuation
date following the expiration of the permitted delay. The transaction is made
within five days thereafter.
In addition, payments on surrenders attributable to a premium payment made by
check may be delayed up to 15 days. This permits payment to be collected on the
check.
MARKET TIMING DISCLOSURE
The Policy does not permit excessive trading or market timing. Market timing
activity can disrupt management strategy of the underlying mutual funds and
increase expenses, which are borne by all Policy owners. We reserve the right to
reject excessive exchanges or purchases by market timers if the trade would
disrupt the management of the Separate Account, any division or any underlying
mutual fund. In addition, we may suspend or modify transfer privileges at any
time to prevent market timing efforts that could disadvantage other Policy
owners. These modifications could include, but not be limited to:
. requiring a minimum time period between each transfer;
. not accepting transfer requests from someone providing them for multiple
Policies for which he or she is not the owner; or
. limiting the dollar amount that a Policy owner may transfer at any one time.
40
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right to make certain changes if, in our judgement, they best
serve your interests or are appropriate in carrying out the purpose of the
Policy. Any changes are made only to the extent and in the manner permitted by
applicable laws. Also, when required by law, we will obtain your approval of the
changes and approval from any appropriate regulatory authority. Approvals may
not be required in all cases. Examples of the changes we may make include:
. transfer assets in any division to another division or to the Fixed Account;
. add, combine or eliminate divisions; or
. substitute the shares of a division for shares in another division:
. if shares of a division are no longer available for investment; or
. if in our judgement, investment in a division becomes inappropriate
considering the purposes of the division.
If we eliminate or combine existing divisions or transfer assets from one
division to another, you may change allocation percentages and transfer any
value in an affected division to another division(s) and/or the Fixed Account
without charge. You may exercise this exchange privilege until the later of 60
days after a) the effective date of the change, or b) the date you receive
notice of the options available. You may only exercise this right if you have an
interest in the affected division(s).
OFFICERS AND DIRECTORS OF PRINCIPAL MANAGEMENT CORPORATION
The officers and directors of the investment advisor, Principal Management
Corporation, are shown below. This list includes some of the same people
(designated by *), who are serving in the same capacities as officers and
directors of the underwriter, Princor Financial Services Corporation. The
principal business address for each officer and director is: Principal Financial
Group, Des Moines, Iowa 50392.
*JOHN EDWARD ASCHENBRENNER Director
*PATRICIA ANN BARRY Assistant Corporate Secretary
*CRAIG LAWRENCE BASSETT Treasurer
*MICHAEL THOMAS DALEY Director
*RALPH CRAIG EUCHER Director and President
*ARTHUR SIGLIN FILEAN Senior Vice President
*DENNIS PAUL FRANCIS Director
*PAUL NORMAN GERMAIN Vice President - Mutual Fund Operations
*ERNEST HAROLD GILLUM Vice President - Product Development
*JOHN BARRY GRISWELL Chairman of the Board and Director
*JOYCE NIXSON HOFFMAN Senior Vice President and Corporate Secretary
Senior Vice President - Marketing and
*JOHN RANDALL LEPLEY Distribution
Assistant Vice President - Business Systems and
*KELLY ANN PAUL Technology
*RICHARD LEO PREY Director
LAYNE ALLAN RASMUSSEN Controller - Mutual Funds
*MICHAEL DENNIS ROUGHTON Counsel
*JAMES FRANKLIN SAGER Vice President
*JEAN BETSY SCHUSTEK Assistant Vice President - Registered Products
*KAREN ELIZABETH SHAFF Director
Senior Vice President and Chief Financial
*KIRK LLOYD TIBBETTS Officer
*LARRY DONALD ZIMPLEMAN Director
41
PRINCIPAL LIFE INSURANCE COMPANY:
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS)
JOHN EDWARD ASCHENBRENNER Executive Vice President
PAUL FRANCIS BOGNANNO Senior Vice President
GARY MERLYN CAIN Senior Vice President
MICHAEL THOMAS DALEY Executive Vice President
CHARLES ROBERT DUNCAN Senior Vice President
DENNIS PAUL FRANCIS Senior Vice President
Executive Vice President and Chief Financial
MICHAEL HARRY GERSIE Officer
THOMAS JOHN GRAF Senior Vice President
ROBB BRYAN HILL Senior Vice President
JOYCE NIXSON HOFFMAN Senior Vice President and Corporate Secretary
DANIEL JOSEPH HOUSTON Senior Vice President
ELLEN ZISLIN LAMALE Senior Vice President and Chief Actuary
MARY AGNES O'KEEFE Senior Vice President
RICHARD LEO PREY Executive Vice President
KAREN ELIZABETH SHAFF Senior Vice President and General Counsel
ROBERT ALLEN SLEPICKA Senior Vice President
NORMAN RAUL SORENSEN Senior Vice President
Senior Vice President and Chief Information
CARL CHANSON WILLIAMS Officer
LARRY DONALD ZIMPLEMAN Executive Vice President
DIRECTORS OF PRINCIPAL LIFE INSURANCE COMPANY
Principal Life Insurance Company is managed by a Board of Directors. The
directors of the Company, their positions with the Company, including Board
Committee memberships, and their principal occupation during the last five
years, are as follows:
NAME, POSITIONS AND PRINCIPAL OCCUPATION DURING LAST 5 YEARS
------OFFICES------ ----------------------------------------
-------
President and Chief Executive Officer of AT&T
Consumer since April 2001. Prior thereto,
BETSY JANE BERNARD Executive Vice President - National Mass markets
Director of Quest Communications, formerly US West,
Chair, Nominating 2000-2001; Executive Vice President - Retail
Committee Markets of US West, 1998-2000; President and
Chief Executive Officer of US WEST Long Distance,
1997-1998; President and Chief Operating Officer
of Avirnex July 1997 - December 1997; President
and Chief Executive Officer of Pacific Bell
Communications, Pacific Telesis from 1995-1997
Corporate Vice President and Chief Marketing
Officer, Motorola, Inc. since 1999. Vice
JOCELYN CARTER-MILLER President, 1998-1999; Vice President and General
Director Manager, since 1997. Prior thereto, Vice
Member, Audit Committee President of Latin American and Caribbean
Operations of Motorola.
DAVID JAMES DRURY
Director, Chairman of Chairman, Principal Life Insurance Company since
the Board 2000. Chairman and Chief Executive Officer
Chair, Executive 1995-2000.
Committee
CHARLES DANIEL GELATT,
JR.
Director
Member, Executive President, NMT Corporation since 1986
Committee
Member, Human Resources
Committee
JOHN BARRY GRISWELL President and Chief Executive Officer, Principal
Director Life Insurance Company since 2000. President
Member, Executive 1998-2000; Executive Vice president 1996-1998;
Committee Senior Vice President 1991-1996.
Executive Vice President and Chief Financial
SANDRA LYNN HELTON Officer of Telephone & Data Systems, Inc. since
Director 1998. Vice President and corporate Controller of
Member, Audit Committee Compaq Computer Corporation from 1997-1998. Prior
thereto, Senior Vice President and Treasurer of
Corning Incorporated from 1994-1997.
Retired. Executive Vice President of DuPont
1999-2000. Chairman, President and Chief
CHARLES SAMUEL JOHNSON Executive Officer, Pioneer Hi-Bred International,
Director Inc. 1996-1999; President and Chief Executive
Member, Audit Committee Officer 1995-1996; President and Chief Operating
Officer 1995.
WILLIAM TURNBALL KERR
Director Chairman, President & Chief Executive Officer,
Member, Executive Meredith Corporation since 1998. President and
Committee Chief Executive Officer, 1997-1998; President and
Chair, Human Resources Chief Operating Officer 1994-1997. Prior thereto,
Committee Executive Vice President.
LEE LIU
Director Retired. Chairman Alliant Energy Corporation
Member, Executive 1998-2000. Chairman and Chief Executive Officer,
Committee IES Industries, Inc., 1996-1998. Prior thereto,
Member, Human Resources Chairman, President and Chief Executive Officer.
Committee
VICTOR HENDRIK
LOEWENSTEIN Partner Egon Zehnder International since 1999.
Director Prior thereto, Managing Partner, Egon Zehnder
Member, Nominating International 1979-1999.
Committee
RONALD DALE PEARSON
Director Chief Executive Officer, Chairman and President,
Member, Human Resources Hy-Vee, Inc. since 1989.
Committee
FEDERICO FABIAN PENA Managing Director of Vestar Capital Partners
Director since 2000. Senior Advisor of Vestar Capital
Member, Nominating Partners 1998-2000. Prior thereto, Secretary,
Committee U.S. Department of Energy 1996-1998.
President and Chief Executive Officer of the
Chicago Community Trust since 2000. Senior
DONALD MITCHELL STEWART Program Officer and Special Advisor to the
Director President at the Carnegie Corporation of New York
Member, Nominating 1999-2000. Prior thereto, President, The College
Committee Board, 1986-1999.
President and Chief Executive Officer of Galenor
ELIZABETH EDITH TALLETT Inc. since 1999 and also President & Chief
Director Executive Officer of Dioscor, Inc. since 1996.
Chair, Audit Committee
42
DISTRIBUTION OF THE POLICY
We intend to sell the Policies in all jurisdictions where we are licensed. The
Policies will be sold by licensed insurance agents who are also registered
representatives of broker-dealers registered with the SEC under the Securities
Exchange Act of 1934 who are members of the National Association of Securities
Dealers, Inc. (NASD).
The Policies will be distributed by the general distributor, Princor Financial
Services Corporation (Princor), which is an affiliate of ours. The distribution
contract may be terminated by either party upon 60 day notice. Princor was
incorporated in the State of Iowa on May 1, 1968, and is also a securities
broker-dealer registered with the SEC as well as a member of the NASD. The
Policies may also be sold through other broker-dealers authorized by Princor and
applicable law to do so. Registered representatives of such broker-dealers may
be paid on a different basis than described below.
43
For Policies sold through Princor, commissions generally will be no more than
50% of premium received in the first policy year or the first year following an
adjustment up to the planned periodic premium (not to exceed target premium). In
addition, a commission of up to 3% of premium received in the first policy year
(or first year following an adjustment) may be paid. In the second through fifth
years following the policy date (or adjustment date), commissions range from 0%
to 2% of premiums received. A service fee of up to 10% is paid on premiums
received. An asset based fee of 0.25% is paid in policy years 6 through 20 which
is reduced to 0.15% after policy year 20. Expense allowances may be paid to
agents and brokers based on premiums received.
STATE REGULATION
The Company is subject to the laws of the State of Iowa governing insurance
companies and to regulation by the Insurance Department of the State of Iowa. An
annual statement in a prescribed form must be filed by March 1 in each year
covering our operations for the preceding year and our financial condition on
December 31 of the prior year. Our books and assets are subject to examination
by the Commissioner of Insurance of the State of Iowa or her representatives at
all times. A full examination of our operations is conducted periodically by the
National Association of Insurance Commissioners. Iowa law and regulations also
prescribe permissible investments, but this does not involve supervision of the
investment management or policy of the Company.
In addition, we are subject to the insurance laws and regulations of other
states and jurisdictions where we are licensed to operate. Generally, the
insurance departments of these states and jurisdictions apply the laws of the
state of domicile in determining the field of permissible investments.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes, which in our opinion are currently in effect.
These rules are based on laws, regulations and interpretations that are subject
to change at any time. This summary is not comprehensive and is not intended as
tax advice. While we reserve the right to change the Policy to assure it
continues to qualify as life insurance for tax purposes, we cannot make any
guarantee regarding the future tax treatment of any Policy. You should consult a
qualified tax adviser about the tax implications of taking action under a
Policy.
TAX STATUS OF THE COMPANY AND THE SEPARATE ACCOUNT
We are taxed as an insurance company under subchapter L of the Code. The
Separate Account is not a separate taxable entity. Its operations are taken into
account by us in determining our tax liability. All Separate Account investment
income and realized net capital gains are reinvested and taken into account in
determining policy values and are automatically applied to increase the book
reserves associated with the Policies.
CHARGES FOR TAXES
We impose a federal tax charge equal to 1.25% of premiums received under the
Policy to compensate us for the federal income tax liability we incur by reason
of receiving those premiums. We believe that this charge is reasonable in
relation to the increased tax burden the Company incurs as a result of Section
848 of the Code. No other charge is currently made to the Separate Account for
federal income taxes of the Company that may be attributable to the Separate
Account. Periodically, we review the appropriateness of charges to the Separate
Account for federal income taxes. In the future, a charge may be made for
federal income taxes incurred by us and attributable to the Separate Account. In
addition, depending on the method of calculating interest on policy values
allocated to the Fixed Account, a charge may be imposed for the Policy's share
of our federal income taxes attributable to the Fixed Account.
Under current law, we may incur state or local taxes (in addition to premium
taxes) in several states. At present, these taxes are not significant. If there
is a material change attributable to state or local taxes, we reserve the right
to charge the Separate Account for the portion of taxes, if any, attributable to
the Separate Account.
44
DIVERSIFICATION STANDARDS
The Policy should qualify as a life insurance contract as long as the underlying
investments for the Policy satisfy diversification requirements of Section
817(h) of the Code.
IRS DEFINITION OF LIFE INSURANCE
The Policy should qualify as a life insurance contract as long as it satisfies
certain tests under Section 7702 of the Code.
. The Policy qualifies if it satisfies the guideline premium test (which places
limitations on the amount of premium payments that may be made) and falls
within a cash value corridor (the limitation on Policy values that can
accumulate relative to the death benefit)
. If at any time a premium is paid which would result in total premiums
exceeding the current maximum premium allowed, we only accept that portion of
the premium which would make the total premiums equal the maximum.
MODIFIED ENDOWMENT CONTRACT STATUS
Section 7702A of the Code sets forth a classification of life insurance policies
known as "Modified Endowment Contracts." Policy loans and partial surrenders
from a policy that is classified as a modified endowment contract are taxable as
ordinary income to the owner in an amount equal to the lesser of the amount of
the loan/partial surrender or the excess of policy value over the owner's
investment in the Policy. Additionally, taxable distributions are subject to a
federal income tax penalty of 10% unless the payment is:
. made after the owner attains age 591/2;
. attributable to the taxpayer becoming disabled; or
. part of a series of substantially equal periodic payments (made not less
frequently than annually) made for the life or life expectancy of the
taxpayer.
Modified endowment contract classification may be avoided by limiting the amount
of premiums paid under the Policy. If any premium payment increases the policy's
death benefit by more than it increases the policy value, and in the absence of
your instructions, we will refund the premium payment.
POLICY SURRENDERS AND PARTIAL SURRENDERS
A surrender or lapse of the Policy may have income tax consequences. Upon
surrender, the owner(s) is not taxed on the cash surrender value except for the
amount, if any, that exceeds the gross premiums paid less the untaxed portion of
any prior surrenders. The amount of any policy loan, upon surrender or lapse, is
added to the cash surrender value and treated, for this purpose, as if it had
been received. A loss incurred upon surrender is generally not deductible. The
tax consequences of a surrender may differ if the proceeds are received under
any income payment settlement option.
A total surrender of the Policy will, and a partial surrender may, be included
in your gross income to the extent that the distribution exceeds your investment
in the Policy. Partial surrenders generally are not taxable unless the total of
such surrenders exceeds total premiums paid to the date of partial surrender
less the untaxed portion of any prior partial surrenders. During the first 15
policy years, an amount may be taxable prior to your tax-free recovery of your
investment in the Policy if the partial surrender results in or is necessitated
by a reduction in death benefits. A qualified tax advisor should be consulted
regarding the tax consequences of any partial surrender during the first 15
policy years.
The increase in policy value of the Policy is not included in gross income
unless and until there is a total surrender or partial surrender under the
Policy. A complete surrender of the Policy will, and a partial surrender may, be
included in your gross income to the extent the distribution exceeds your
investment in the Policy. Transfers between the division(s) and/or the Fixed
Account are not considered as distributions from the Policy and would not be
considered taxable income.
45
POLICY LOANS AND LOAN INTEREST
Loans received under the Policy are generally recognized as loans for tax
purposes and are not considered to be distributions subject to tax. Interest
paid to us as a result of a policy loan may or may not be deductible depending
on a number of factors. Due to the complexity of these factors, you should
consult a competent tax advisor as to the deductibility of interest paid on
policy loans. If the Policy is a modified endowment contract, a policy loan is
taxable to an amount equal to the lesser of the amount of the loan or the excess
of policy value over the owner's investment in the Policy.
If the Policy lapses with an outstanding loan balance, there may be tax
consequences. Please consult a competent tax advisor
CORPORATE ALTERNATIVE MINIMUM TAX
Ownership of a Policy by certain corporations may affect the owner's exposure to
the corporate alternative minimum tax. In determining whether it is subject to
alternative minimum tax, the corporate owner must make two computations. First,
the corporation must take into account a portion of the current year's increase
in the built-in gain in its corporate owned policies. Second, the corporation
must take into account a portion of the amount by which the death benefits
received under any Policy exceed the sum of a) the premiums paid on that Policy
in the year of death, and b) the corporation's basis in the Policy (as measured
for alternative minimum tax purposes) as of the end of the corporation's tax
year immediately preceding the year of death. The corporate alternative minimum
tax does not apply to S Corporations. Such tax also does not apply to "Small
Corporations" as defined by Section 55(c) of the Code. Corporations with gross
receipts of $5,000,000 or less for their first taxable year after 1996, with
gross receipts not exceeding $7,500,000 after the first taxable year, will meet
this definition.
EXCHANGE OR ASSIGNMENT OF POLICIES
A change of policy, or an exchange or assignment of a Policy may have tax
consequences. An assignment or exchange may result in taxable income to the
transferring owner. For complete information with respect to policy assignments
and exchanges, a qualified tax advisor should be consulted.
WITHHOLDING
Withholding is generally required on certain taxable distributions under
insurance contracts. In the case of periodic payments, the withholding is at
graduated rates. With respect to non-periodic distributions, withholding is a
flat rate of 10%. You may elect to have either non-periodic or periodic payments
made without withholding except if your tax identification number has not been
furnished to us or if the IRS has notified us that the number you furnished is
incorrect.
OTHER TAX ISSUES
Federal estate taxes and state and local estate, inheritance and other taxes may
become due depending on applicable law and your circumstances or the
circumstances of the policy beneficiary(ies) if you or the insured dies. Any
person concerned about the estate implications of the Policy should consult a
competent tax advisor.
EMPLOYEE BENEFIT PLANS
The United States Supreme Court has held that optional annuity benefits under a
qualified deferred compensation plan cannot vary on the basis of gender. Polices
are available for use in connection with employment related insurance or benefit
plans which do not vary between male and female insured of a particular age and
underwriting classification. A competent tax advisor should be consulted on
these matters.
LEGAL OPINIONS
Legal matters applicable to the issue and sale of the Policies, including our
right to issue Policies under Iowa Insurance Law, have been passed upon by Karen
E. Shaff, Senior Vice President and General Counsel.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a party
or which would materially affect the Separate Account.
46
REGISTRATION STATEMENT
This prospectus omits some information contained in the registration statement
that we have filed with the SEC. Statements contained in this prospectus are
summaries of the contents of the Policy and other legal documents.
OTHER VARIABLE INSURANCE CONTRACTS
The Company currently offers other variable life contracts that participate in
the Separate Account. In the future, we may designate additional group or
individual variable annuity contracts as participating in the Separate Account.
RESERVATION OF RIGHTS
The Company reserves the right to amend or terminate the special plans described
in this prospectus. Such plans include preauthorized premium payments, dollar
cost averaging (DCA) and automatic portfolio rebalancing (APR). You would be
notified of any such action to the extent required by law.
CUSTOMER INQUIRIES
Your questions should be directed to: The Principal Variable Universal Life
Accumulator, Principal Financial Group, P.O. Box 9296, Des Moines, Iowa
50306-9296, 1-800-247-9988.
INDEPENDENT AUDITORS
The financial statements of the Principal Life Insurance Company Variable Life
Separate Account and the consolidated financial statements of the Principal Life
Insurance Company are included in this prospectus. Those statements have been
audited by Ernst & Young LLP, independent auditors, 801 Grand Avenue, Des
Moines, Iowa 50309, for the periods indicated in their reports.
FINANCIAL STATEMENTS
The consolidated financial statements of Principal Life Insurance Company which
are included in this prospectus should be considered only as it relates to our
ability to meet our obligations under the Policy. They do not relate to
investment performance of the assets held in the Separate Account.
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF NET ASSETS
September 30, 2001
(Unaudited)
Assets
Investments (Note 1):
AIM V.I. Growth and Income Division -- AIM V.I. Growth and Income Fund --
2,487 shares at net asset value of $17.67 per share
(cost-- 550,371 )..............................................................................................$43,937
AIM V.I. Growth Division -- AIM V.I. Growth Fund --
4,013 shares at net asset value of $15.10 per share
(cost-- $67,921 )...............................................................................................60,599
AIM V.I. Value Division -- AIM V.I. Value Fund --
10,109 shares at net asset value of $21.68 per share
(cost-- $247,340 ).............................................................................................219,162
American Century VP Income & Growth Division -- American Century Variable Portfolios, Inc-VP Income & Growth --
23,577 shares at net asset value of $5.87 per share
(cost-- $154,587 ).............................................................................................138,396
American Century VP Ultra Division -- American Century Variable Portfolios, Inc-VP Ultra --
10,121 shares at net asset value of $8.43 per share
(cost-- $96,615 )...............................................................................................85,318
Asset Allocation Division -- Asset Allocation Account --
742,265 shares at net asset value of $10.96 per share
(cost-- $9,022,343 )........................................................................................8,135,226
Balanced Division -- Balanced Account --
918,694 shares at net asset value of $13.03 per share
(cost-- $14,020,241 ).......................................................................................11,970,579
Bond Division -- Bond Account --
1,101,837 shares at net asset value of $11.89 per share
(cost-- $12,695,079 ).......................................................................................13,100,841
Capital Value Division -- Capital Value Account --
1,019,285 shares at net asset value of $26.25 per share
(cost-- $33,224,352 ).......................................................................................26,756,237
Fidelity VIP Contrafund Division -- Fidelity Variable Insurance Products Fund II: Contrafund Portfolio --
1,922,285 shares at net asset value of $18.83 per share
(cost-- $45,170,029 ).......................................................................................36,196,622
DIP Founders Discovery Division -- Dreyfus Investment Portfolios-Founders Discovery Portfolio --
14,650 shares at net asset value of $7.96 per share
(cost-- $140,464 ).............................................................................................116,610
Equity Growth Division -- Equity Growth Account --
3,027,515 shares at net asset value of $14.46 per share
(cost-- $60,191,003 ).......................................................................................43,777,861
Fidelity VIP Equity-Income Division -- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio --
731,379 shares at net asset value of $20.80 per share
(cost-- $17,582,970 ).......................................................................................15,212,689
Government Securities Division -- Government Securities Account --
783,907 shares at net asset value of $11.59 per share
(cost-- $8,699,398 ).........................................................................................9,085,478
Growth Division -- Growth Account --
1,167,910 shares at net asset value of $10.70 per share
(cost-- $21,328,982 ).......................................................................................12,496,639
Fidelity VIP High Income Division -- Fidelity Variable Insurance Products Fund: High Income Portfolio --
412,829 shares at net asset value of $6.23 per share
(cost-- $3,692,118 ).........................................................................................2,571,927
High Yield Division -- High Yield Account --
269,971 shares at net asset value of $6.28 per share
(cost-- $2,189,166 ).........................................................................................1,695,417
International Division -- International Account --
1,591,095 shares at net asset value of $9.62 per share
(cost-- $22,766,727 ).......................................................................................15,306,335
International SmallCap Division -- International SmallCap Account --
646,216 shares at net asset value of $9.50 per share
(cost-- $8,387,683 ).........................................................................................6,139,051
Invesco VIF Dynamics Division -- Invesco VIF-Dynamics Fund --
2,530 shares at net asset value of $9.70 per share
(cost-- $30,912 )...............................................................................................24,544
Invesco VIF Health Sciences Division -- Invesco VIF-Health Sciences Fund --
7,408 shares at net asset value of $17.23 per share
(cost-- $129,917 ).............................................................................................127,647
Invesco VIF Small Company Growth Division -- Invesco VIF-Small Company Growth Fund --
2,096 shares at net asset value of $11.73 per share
(cost-- $28,771 )...............................................................................................24,590
Invesco VIF Technology Division -- Invesco VIF-Technology Fund --
4,456 shares at net asset value of $11.13 per share
(cost-- $67,370 )...............................................................................................49,596
Janus Aspen Aggressive Growth Division -- Janus Aspen Series Aggressive Growth Portfolio --
10,594 shares at net asset value of $19.13 per share
(cost-- $261,714 ).............................................................................................202,672
LargeCap Growth Division -- LargeCap Growth Account --
6,321 shares at net asset value of $7.69 per share
(cost-- $57,048 )...............................................................................................48,610
LargeCap Stock Index Division -- LargeCap Stock Index Account --
1,674,558 shares at net asset value of $7.56 per share
(cost-- $16,352,707 ).......................................................................................12,659,655
MicroCap Division -- MicroCap Account --
191,586 shares at net asset value of $7.59 per share
(cost-- $1,720,646 ).........................................................................................1,454,138
MidCap Division -- MidCap Account --
1,179,566 shares at net asset value of $29.50 per share
(cost-- $38,749,643 ).......................................................................................34,797,194
MidCap Growth Division -- MidCap Growth Account --
368,749 shares at net asset value of $6.84 per share
(cost-- $3,647,336 ).........................................................................................2,522,246
MidCap Growth Equity Division -- MidCap Growth Equity Account --
9,928 shares at net asset value of $4.73 per share
(cost-- $59,224 )...............................................................................................46,959
MidCap Value Division -- MidCap Value Account --
11,579 shares at net asset value of $10.96 per share
(cost-- $135,612 ).............................................................................................126,907
Money Market Division -- Money Market Account --
27,025,299 shares at net asset value of $1.00 per share
(cost-- $27,025,385 ).......................................................................................27,025,299
Putnam VT Global Asset Allocation Division -- Putnam Variable Trust: Global Asset Allocation Fund --
99,398 shares at net asset value of $12.34 per share
(cost-- $1,600,781 ).........................................................................................1,226,575
Putnam VT Vista Division -- Putnam Variable Trust: Vista Fund --
540,601 shares at net asset value of $9.02 per share
(cost-- $9,340,577 ).........................................................................................4,876,225
Putnam VT Voyager Division -- Putnam Variable Trust: Voyager Fund --
709,753 shares at net asset value of $25.80 per share
(cost-- $32,026,665 ).......................................................................................18,311,619
Real Estate Division -- Real Estate Account --
260,837 shares at net asset value of $10.80 per share
(cost-- $2,666,310 ).........................................................................................2,817,041
SmallCap Division -- SmallCap Account --
414,989 shares at net asset value of $6.39 per share
(cost-- $3,711,057 ).........................................................................................2,651,782
SmallCap Growth Division -- SmallCap Growth Account --
873,303 shares at net asset value of $8.26 per share
(cost-- $14,031,007 )........................................................................................7,213,486
SmallCap Value Division -- SmallCap Value Account --
401,507 shares at net asset value of $10.45 per share
(cost-- $4,542,305 ).........................................................................................4,195,744
Utilities Division -- Utilities Account --
204,880 shares at net asset value of $9.31 per share
(cost-- $2,343,340 ).........................................................................................1,907,428
----------------------
Combined net assets $325,418,881
======================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF NET ASSETS (CONTINUED)
September 30, 2001
(Unaudited)
Unit
Units Value
-------------------------------------
Net assets are represented by:
AIM V.I. Growth and Income Division --
Flex Variable Life 15 $7.31 $111
PrinFlex Life 5,981 7.33 43,825
Survivorship Variable Universal Life 0 7.33 0
--------------------
43,937
AIM V.I. Growth Division --
Flex Variable Life 0 7.86 0
PrinFlex Life 7,693 7.88 60,599
Survivorship Variable Universal Life 0 7.88 0
--------------------
60,599
AIM V.I. Value Division --
Flex Variable Life 51 8.02 408
PrinFlex Life 26,092 8.04 209,819
Survivorship Variable Universal Life 1,111 8.04 8,935
--------------------
219,162
American Century VP Income & Growth Division --
Flex Variable Life 14 8.19 117
PrinFlex Life 16,578 8.21 136,098
Survivorship Variable Universal Life 266 8.21 2,181
--------------------
138,396
American Century VP Ultra Division --
Flex Variable Life 100 8.11 810
PrinFlex Life 10,291 8.13 83,659
Survivorship Variable Universal Life 105 8.13 850
--------------------
85,318
Asset Allocation Division --
Flex Variable Life 0 9.14 0
PrinFlex Life 539,737 13.94 7,526,051
Survivorship Variable Universal Life 59,074 10.31 609,175
--------------------
8,135,226
Balanced Division --
Flex Variable Life 118,922 26.30 3,127,575
PrinFlex Life 729,667 11.71 8,542,511
Survivorship Variable Universal Life 34,182 8.79 300,494
--------------------
11,970,579
Bond Division --
Flex Variable Life 62,854 26.80 1,684,186
PrinFlex Life 821,559 13.52 11,110,927
Survivorship Variable Universal Life 25,971 11.77 305,728
--------------------
13,100,841
Capital Value Division --
Flex Variable Life 216,976 31.18 6,764,580
PrinFlex Life 1,649,370 11.93 19,687,557
Survivorship Variable Universal Life 37,741 8.06 304,100
--------------------
26,756,237
Fidelity VIP Contrafund Division --
Flex Variable Life 0 8.74 0
PrinFlex Life 2,326,618 15.00 34,898,672
Survivorship Variable Universal Life 149,115 8.70 1,297,949
--------------------
36,196,622
DIP Founders Discovery Division --
Flex Variable Life 0 7.20 0
PrinFlex Life 16,158 7.22 116,610
Survivorship Variable Universal Life 0 7.22 0
--------------------
116,610
Equity Growth Division --
Flex Variable Life 346 7.98 2,762
PrinFlex Life 3,082,816 13.72 42,317,537
Survivorship Variable Universal Life 176,618 8.25 1,457,563
--------------------
43,777,861
Fidelity VIP Equity-Income Division --
Flex Variable Life 403 8.36 3,371
PrinFlex Life 1,056,812 13.71 14,494,248
Survivorship Variable Universal Life 78,054 9.16 715,070
--------------------
15,212,689
Government Securities Division --
Flex Variable Life 2,292 10.47 23,994
PrinFlex Life 422,409 14.15 5,979,777
Survivorship Variable Universal Life 252,934 12.18 3,081,708
--------------------
9,085,478
Growth Division --
Flex Variable Life 0 7.44 0
PrinFlex Life 1,181,316 10.03 11,853,215
Survivorship Variable Universal Life 100,714 6.39 643,424
--------------------
12,496,639
Fidelity VIP High Income Division --
Flex Variable Life 125 8.73 1,095
PrinFlex Life 312,595 7.93 2,477,879
Survivorship Variable Universal Life 13,889 6.69 92,953
--------------------
2,571,927
High Yield Division --
Flex Variable Life 84,910 19.97 1,695,417
--------------------
1,695,417
International Division --
Flex Variable Life 91 7.78 711
PrinFlex Life 1,529,509 9.64 14,754,816
Survivorship Variable Universal Life 74,955 7.35 550,808
--------------------
15,306,335
International SmallCap Division --
Flex Variable Life 0 7.42 0
PrinFlex Life 527,841 10.64 5,614,810
Survivorship Variable Universal Life 57,960 9.04 524,241
--------------------
6,139,051
Invesco VIF Dynamics Division --
Flex Variable Life 0 6.21 0
PrinFlex Life 3,942 6.23 24,544
Survivorship Variable Universal Life 0 6.23 0
--------------------
24,544
Invesco VIF Health Sciences Division --
Flex Variable Life 0 9.37 0
PrinFlex Life 12,856 9.40 120,848
Survivorship Variable Universal Life 723 9.40 6,799
--------------------
127,647
Invesco VIF Small Company Growth Division --
Flex Variable Life 0 6.76 0
PrinFlex Life 3,514 6.78 23,828
Survivorship Variable Universal Life 112 6.78 762
--------------------
24,590
Invesco VIF Technology Division --
Flex Variable Life 0 5.15 0
PrinFlex Life 9,020 5.16 46,542
Survivorship Variable Universal Life 592 5.16 3,054
--------------------
49,596
Janus Aspen Aggressive Growth Division --
Flex Variable Life 1,777 6.64 11,805
PrinFlex Life 28,632 6.66 190,713
Survivorship Variable Universal Life 23 6.66 154
--------------------
202,672
LargeCap Growth Division --
Flex Variable Life 131 6.89 904
PrinFlex Life 6,813 6.91 47,073
Survivorship Variable Universal Life 92 6.91 633
--------------------
48,610
LargeCap Stock Index Division --
Flex Variable Life 750 8.06 6,051
PrinFlex Life 1,490,010 7.93 11,808,657
Survivorship Variable Universal Life 106,196 7.96 844,947
--------------------
12,659,655
MicroCap Division --
Flex Variable Life 701 8.04 5,632
PrinFlex Life 142,798 7.65 1,092,288
Survivorship Variable Universal Life 41,340 8.62 356,218
--------------------
1,454,138
MidCap Division --
Flex Variable Life 255,739 45.77 11,704,443
PrinFlex Life 1,606,189 14.19 22,796,827
Survivorship Variable Universal Life 26,334 11.24 295,923
--------------------
34,797,194
MidCap Growth Division --
Flex Variable Life 0 7.14 0
PrinFlex Life 304,508 7.77 2,368,761
Survivorship Variable Universal Life 19,523 7.86 153,485
--------------------
2,522,246
MidCap Growth Equity Division --
Flex Variable Life 0 6.58 0
PrinFlex Life 6,950 6.60 45,852
Survivorship Variable Universal Life 168 6.60 1,107
--------------------
46,959
MidCap Value Division --
Flex Variable Life 249 8.74 2,172
PrinFlex Life 13,785 8.76 120,774
Survivorship Variable Universal Life 452 8.76 3,960
--------------------
126,907
Money Market Division --
Flex Variable Life 29,489 18.45 544,054
PrinFlex Life 1,963,930 12.66 24,864,700
Survivorship Variable Universal Life 144,517 11.19 1,616,545
--------------------
27,025,299
Putnam VT Global Asset Allocation Division --
Flex Variable Life 0 8.63 0
PrinFlex Life 118,500 9.23 1,094,433
Survivorship Variable Universal Life 15,158 8.72 132,142
--------------------
1,226,575
Putnam VT Vista Division --
Flex Variable Life 0 6.43 0
PrinFlex Life 564,511 8.13 4,591,759
Survivorship Variable Universal Life 40,290 7.06 284,467
--------------------
4,876,225
Putnam VT Voyager Division --
Flex Variable Life 1,633 7.64 12,476
PrinFlex Life 1,689,151 10.02 16,933,682
Survivorship Variable Universal Life 163,854 8.33 1,365,461
--------------------
18,311,619
Real Estate Division --
Flex Variable Life 584 10.59 6,190
PrinFlex Life 184,667 12.28 2,268,032
Survivorship Variable Universal Life 41,064 13.22 542,819
--------------------
2,817,041
SmallCap Division --
Flex Variable Life 96 7.55 722
PrinFlex Life 297,357 8.27 2,459,225
Survivorship Variable Universal Life 22,297 8.60 191,835
--------------------
2,651,782
SmallCap Growth Division --
Flex Variable Life 10 5.94 62
PrinFlex Life 727,701 9.16 6,667,780
Survivorship Variable Universal Life 75,236 7.25 545,644
--------------------
7,213,486
SmallCap Value Division --
Flex Variable Life 447 8.59 3,839
PrinFlex Life 330,775 11.88 3,931,551
Survivorship Variable Universal Life 20,439 12.74 260,354
--------------------
4,195,744
Utilities Division --
Flex Variable Life 689 7.52 5,183
PrinFlex Life 163,978 10.56 1,731,183
Survivorship Variable Universal Life 19,514 8.77 171,062
--------------------
1,907,428
--------------------
Combined net assets $325,418,881
====================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
For the Period Ended September 30, 2001
(Unaudited)
American
AIM V.I. Century American
Growth AIM V.I. AIM V.I. VP Income Century
and Income Growth Value & Growth VP Ultra
Combined Division Division Division Division Division
--------------------------------------------------------------------------------------
Investment Income
Income:
Dividends .................................. $2,813,896 $0 $0 $0 $0 $0
Capital gains distributions...................10,948,102 0 0 0 0 0
-------------------------------------------------------------------------------------
Total Income 13,761,998 0 0 0 0 0
Expenses :
Mortality and expense risks -......... 2,143,570 118 159 348 222 183
-------------------------------------------------------------------------------------
Net Investment Income 11,618,428 (118) (159) (348) (222) (183)
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ (4,295,413) (3,266) (181) (2,357) (52) (8,947)
Change in net unrealized appreciation
depr of investments....................... (78,396,358) (6,434) (7,322) (28,177) (16,191) (11,297)
-------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ($71,073,343) ($9,819) ($7,661) ($30,882) ($16,465) ($20,427)
=====================================================================================
Asset Capital Fidelity VIP
Allocation Balanced Bond Value Contrafund
Division Division Division Division Division
----------------------------------------------------------------------------
Investment Income
Income:
Dividends ............................... $0 $365,554 $691,129 $3,889 $266,237
Capital gains distributions.............. 13,288 167,396 0 128,530 939,660
----------------------------------------------------------------------------
Total Income 13,288 532,950 691,129 132,419 1,205,896
Expenses :
Mortality and expense risks -......... 47,016 78,643 65,096 195,719 225,653
----------------------------------------------------------------------------
Net Investment Income (33,729) 454,307 626,033 (63,299) 980,243
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ (220,524) (80,404) (15,895) (323,077) (495,299)
Change in net unrealized appreciation
depr of investments....................... (487,376) (1,959,180) 221,040 (4,174,144) (7,933,820)
----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ($741,629) ($1,585,277) $831,178 ($4,560,519) ($7,448,876)
============================================================================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
For the Period Ended September 30, 2001
(Unaudited)
DIP Fidelity VIP
Founders Equity Equity- Government Fidelity VIP
Discovery Growth Income Securities Growth High Income
Division Division Division Division Division Division
--------------------------------------------------------------------------------------
Investment Income
Income:
Dividends ............................... $0 $42,527 $235,916 $216,752 $0 $233,699
Capital gains distributions.............. 0 2,923,876 662,811 0 0 0
--------------------------------------------------------------------------------------
Total Income 0 2,966,404 898,727 216,752 0 233,699
Expenses :
Mortality and expense risks -......... 229 306,188 88,247 30,318 98,175 16,213
--------------------------------------------------------------------------------------
Net Investment Income (229) 2,660,216 810,480 186,433 (98,175) 217,486
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ (3,624) (285,140) (90,839) 10,131 (155,361) (129,028)
Change in net unrealized appreciation
depr of investments.......................(23,854) (15,666,245) (3,033,920) 216,025 (5,734,347) (541,332)
--------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ($27,707) ($13,291,169) ($2,314,279) $412,589 ($5,987,883) ($452,874)
======================================================================================
INVESCO INVESCO
High International VIF VIF Health
Yield International SmallCap Dynamics Sciences
Division Division Division Division Division
------------------------------------------------------------------------------
Investment Income
Income:
Dividends ............................... $0 $23,800 $0 $0 $0
Capital gains distributions.............. 0 3,381 0 0 0
------------------------------------------------------------------------
Total Income 0 27,181 0 0 0
Expenses :
Mortality and expense risks -......... 9,564 116,622 47,079 46 166
------------------------------------------------------------------------
Net Investment Income (9,564) (89,440) (47,079) (46) (166)
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ (25,030) (136,950) (1,290,662) (1,012) (258)
Change in net unrealized appreciation
depr of investments....................... (14,274) (6,026,578) (1,268,728) (6,369) (2,269)
------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ($48,869) ($6,252,968) ($2,606,469) ($7,426) ($2,694)
=======================================================================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
For the Period Ended September 30, 2001
(Unaudited)
INVESCO
VIF Small INVESCO Janus Aspen LargeCap
Company VIF Aggressive LargeCap Stock
Growth Technology Growth Growth Index MicroCap
Division Division Division Division Division Division
------------------------------------------------------------------------------------
Investment Income
Income:
Dividends ............................... $0 $0 $0 $0 $0 $0
Capital gains distributions.............. 0 0 0 0 0 0
-------------------------------------------------------------------------------------
Total Income 0 0 0 0 0 0
Expenses :
Mortality and expense risks -......... 37 128 462 78 83,007 9,195
-------------------------------------------------------------------------------------
Net Investment Income (37) (128) (462) (78) (83,007) (9,195)
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ (7) (343) (4,623) (1,104) (178,185) (2,283)
Change in net unrealized appreciation
depr of investments....................... (4,181) (17,774) (59,042) (8,438) (2,880,182) (261,990)
-------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ($4,225) ($18,245) ($64,127) ($9,620) ($3,141,374) ($273,468)
=====================================================================================
Putnam VT
MidCap Global
MidCap Growth MidCap Money Asset
MidCap Growth Equity Value Market Allocation
Division Division Division Division Division Division
-----------------------------------------------------------------------------------
Investment Income
Income:
Dividends ............................... $0 $0 $0 $0 $722,924 $11,469
Capital gains distributions.............. 962,939 60,176 0 0 0 117,908
----------------------------------------------------------------------------------
Total Income 962,939 60,176 0 0 722,924 129,377
Expenses :
Mortality and expense risks -......... 210,114 16,735 149 207 195,096 7,578
----------------------------------------------------------------------------------
Net Investment Income 752,824 43,441 (149) (207) 527,828 121,799
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ 20,348 (55,904) (11,261) (4) 0 (22,335)
Change in net unrealized appreciation
depr of investments....................... (5,711,086) (1,072,241) (12,265) (8,705) (87) (310,184)
----------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ($4,937,914) ($1,084,704) ($23,675) ($8,916) $527,741 ($210,720)
==================================================================================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
For the Period Ended September 30, 2001
(Unaudited)
Putnam VT Putnam VT Real SmallCap
Vista Voyager Estate SmallCap Growth
Division Division Division Division Division
---------------------------------------------------------------------------
Investment Income
Income:
Dividends ............................... $0 $0 $0 $0 $0
Capital gains distributions.............. 679,338 4,288,799 0 0 0
---------------------------------------------------------------------------
Total Income 679,338 4,288,799 0 0 0
Expenses :
Mortality and expense risks -......... 41,591 134,633 10,152 16,918 64,367
---------------------------------------------------------------------------
Net Investment Income 637,747 4,154,167 (10,152) (16,918) (64,367)
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ (336,719) (258,404) 9,532 (18,224) (200,476)
Change in net unrealized appreciation
depr of investments....................... (3,935,908) (10,952,297) 120,421 (598,353) (5,216,930)
---------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ($3,634,880) ($7,056,534) $119,801 ($633,495) ($5,481,773)
===========================================================================
SmallCap
Value Utilities
Division Division
--------------------------------
Investment Income
Income:
Dividends ............................... $0 $0
Capital gains distributions.............. 0 0
-----------------------------
Total Income 0 0
Expenses :
Mortality and expense risks -......... 16,109 11,010
-----------------------------
Net Investment Income (16,109) (11,010)
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain(loss) ................ 27,852 (5,501)
Change in net unrealized appreciation
depr of investments....................... (429,911) (532,412)
-----------------------------
Net Increase in Net Assets
Resulting from Operations ($418,168) ($548,923)
=============================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 2001
(Unaudited)
American
AIM V.I. Century American
Growth AIM V.I. AIM V.I. VP Income Century
and Income Growth Value & Growth VP Ultra
Combined Division Division Division Division Division
---------------------------------------------------------------------
Net Assets at January 1, 2001 307,364,811# 0 0 0 0 0
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. 11,618,428 (118) (159) (348) (222) (183)
Net realized gain (loss) on investments............... (4,295,413) (3,266) (181) (2,357) (52) (8,947)
Change in net unrealized appr/depr..................... (78,396,358) (6,434) (7,322) (28,177) (16,191) (11,297)
------------------------------------------------------------------------
Net Increase resulting from Operations (71,073,343) (9,819) (7,661) (30,882) (16,465) (20,427)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 217,304,045 68,726 71,340 270,310 159,914 222,920
Contract terminations and surrenders - FVLI............ (1,415,926) 0 0 0 0 0
Contract terminations and surrenders - PrinFlex........ (7,996,472) 0 0 (113) 0 0
Contract terminations and surrenders - SVUL............ (3,041) 0 0 0 0 0
Death benefit payments................................. (555,852) 0 0 0 0 0
Policy loan transfers.................................. (3,287,713) 0 0 (122) (122) 0
Transfers to other contracts........................... (87,015,010) (12,637) (904) (14,716) (2,401) (114,415)
Cost of insurance and administration charges - FVLI.... (1,459,240) (68) 0 (12) (68) (17)
Cost of insurance and administration charges - PrinFlex (22,385,791) (2,266) (2,175) (4,771) (2,461) (2,743)
Cost of insurance and administration charges - SVUL.... (941,438) 0 0 (489) 0 0
Surrender charges - FVLI............................... (59,574) 0 0 0 0 0
Surrender charges - PrinFlex............................ (3,003,419) 0 0 (42) 0 0
Surrender charges - SVUL............................... (53,156) 0 0 0 0 0
------------------------------------------------------------------------
Net Increase from Policy Related Transactions 89,127,413 53,755 68,261 250,045 154,861 105,745
------------------------------------------------------------------------
Total Increase 18,054,070 43,936 60,600 219,163 138,396 85,318
------------------------------------------------------------------------
Net Assets at September 30, 2001 325,418,882 43,936 60,600 219,163 138,396 85,318
========================================================================
See accompanying note.
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 2001
(Unaudited)
Asset Capital Fidelity VIP
Allocation Balanced Bond Value Contrafund
Division Division Division Division Division
----------------------------------------------------------------------
Net Assets at January 1, 2001 5,527,233 11,977,437 9,081,333 28,529,336 35,385,437
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. (33,729) 454,307 626,033 (63,299) 980,243
Net realized gain (loss) on investments............... (220,524) (80,404) (15,895) (323,077) (495,299)
Change in net unrealized appr/depr..................... (487,376) (1,959,180) 221,040 (4,174,144) (7,933,820)
------------------------------------------------------------------------
Net Increase resulting from Operations (741,629) (1,585,277) 831,178 (4,560,519) (7,448,876)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 7,390,554 3,749,235 7,275,846 8,372,944 16,947,252
Contract terminations and surrenders - FVLI............ 0 (152,568) (75,509) (283,793) 0
Contract terminations and surrenders - PrinFlex........ (350,777) (290,399) (776,243) (827,400) (1,204,033)
Contract terminations and surrenders - SVUL............ 0 (355) 0 (298) (376)
Death benefit payments................................. 0 (44,648) (12,714) (58,056) (11,054)
Policy loan transfers.................................. (51,534) (119,906) (65,922) (208,034) (221,028)
Transfers to other contracts........................... (3,081,053) (689,878) (2,133,086) (1,889,694) (4,146,153)
Cost of insurance and administration charges - FVLI.... 0 (153,896) (138,548) (363,129) 0
Cost of insurance and administration charges - PrinFlex (404,388) (582,791) (568,540) (1,608,442) (2,555,802)
Cost of insurance and administration charges - SVUL.... (21,432) (14,672) (22,227) (18,764) (89,954)
Surrender charges - FVLI............................... 0 (6,419) (3,177) (11,940) 0
Surrender charges - PrinFlex........................... (131,749) (109,072) (291,551) (310,766) (452,226)
Surrender charges - SVUL............................... 0 (6,210) 0 (5,208) (6,567)
------------------------------------------------------------------------
Net Increase from Policy Related Transactions 3,349,621 1,578,419 3,188,330 2,787,421 8,260,060
------------------------------------------------------------------------
Total Increase 2,607,993 (6,858) 4,019,508 (1,773,099) 811,184
------------------------------------------------------------------------
Net Assets at September 30, 2001 8,135,226 11,970,579 13,100,841 26,756,237 36,196,621
========================================================================
DIP
Founders Equity
Discovery Growth
Division Division
----------------------------------------
Net Assets at January 1, 2001 0 45,972,711
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. (229) 2,660,216
Net realized gain (loss) on investments............... (3,624) (285,140)
Change in net unrealized appr/depr..................... (23,854) (15,666,245)
-----------------------------------------
Net Increase resulting from Operations (27,707) (13,291,169)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 210,289 21,211,702
Contract terminations and surrenders - FVLI............ 0 0
Contract terminations and surrenders - PrinFlex........ 0 (866,947)
Contract terminations and surrenders - SVUL............ 0 (177)
Death benefit payments................................. 0 (7,148)
Policy loan transfers.................................. 0 (450,365)
Transfers to other contracts........................... (64,634) (4,647,130)
Cost of insurance and administration charges - FVLI.... 0 (308)
Cost of insurance and administration charges - PrinFlex (1,337) (3,727,034)
Cost of insurance and administration charges - SVUL.... 0 (87,560)
Surrender charges - FVLI............................... 0 0
Surrender charges - PrinFlex........................... 0 (325,619)
Surrender charges - SVUL............................... 0 (3,096)
-----------------------------------------
Net Increase from Policy Related Transactions 144,318 11,096,319
-----------------------------------------
Total Increase 116,611 (2,194,850)
-----------------------------------------
Net Assets at September 30, 2001 116,611 43,777,861
=========================================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 2001
(Unaudited)
Fidelity VIP
Equity- Government Fidelity VIP High
Income Securities Growth High Income Yield
Division Division Division Division Division
------------------------------------------------------------------------
Net Assets at January 1, 2001 13,577,072 3,393,527 14,740,033 1,821,483 1,617,658
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. 810,480 186,433 (98,175) 217,486 (9,564)
Net realized gain (loss) on investments............... (90,839) 10,131 (155,361) (129,028) (25,030)
Change in net unrealized appr/depr..................... (3,033,920) 216,025 (5,734,347) (541,332) (14,274)
------------------------------------------------------------------------
Net Increase resulting from Operations (2,314,279) 412,589 (5,987,883) (452,874) (48,869)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 7,628,996 6,318,533 6,473,031 1,962,043 248,229
Contract terminations and surrenders - FVLI............ 0 0 0 0 (29,221)
Contract terminations and surrenders - PrinFlex........ (705,633) (153,154) (347,234) (29,673)
Contract terminations and surrenders - SVUL............ (64) (22) (386) (24)
Death benefit payments................................. (25,722) (6,256) (25,686) 0 0
Policy loan transfers.................................. (147,779) (23,689) (121,579) (36,040) (1,917)
Transfers to other contracts........................... (1,670,341) (493,792) (793,528) (507,078) (10,985)
Cost of insurance and administration charges - FVLI.... (206) (62) 0 (65) (78,249)
Cost of insurance and administration charges - PrinFlex (823,307) (287,548) (1,258,441) (167,145) 0
Cost of insurance and administration charges - SVUL.... (39,888) (16,744) (44,519) (7,140) 0
Surrender charges - FVLI............................... 0 0 0 0 (1,229)
Surrender charges - PrinFlex........................... (265,031) (57,524) (130,419) (11,145)
Surrender charges - SVUL............................... (1,127) (380) (6,750) (416)
------------------------------------------------------------------------
Net Increase from Policy Related Transactions 3,949,897 5,279,362 3,744,489 1,203,318 126,628
------------------------------------------------------------------------
Total Increase 1,635,618 5,691,951 (2,243,394) 750,444 77,759
------------------------------------------------------------------------
Net Assets at September 30, 2001 15,212,690 9,085,478 12,496,639 2,571,927 1,695,417
========================================================================
International
International SmallCap
Division Division
---------------------------------------------------
Net Assets at January 1, 2001 17,342,064 6,917,944
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. (89,440) (47,079)
Net realized gain (loss) on investments............... (136,950) (1,290,662)
Change in net unrealized appr/depr..................... (6,026,578) (1,268,728)
---------------------------------------------
Net Increase resulting from Operations (6,252,968) (2,606,469)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 7,414,892 12,025,484
Contract terminations and surrenders - FVLI............ 0 0
Contract terminations and surrenders - PrinFlex........ (247,099) (120,526)
Contract terminations and surrenders - SVUL............ 2 (43)
Death benefit payments................................. (1,714) (2,460)
Policy loan transfers.................................. (156,269) (62,157)
Transfers to other contracts........................... (1,460,317) (9,309,303)
Cost of insurance and administration charges - FVLI.... (43) 0
Cost of insurance and administration charges - PrinFlex (1,200,262) (627,592)
Cost of insurance and administration charges - SVUL.... (39,178) (29,811)
Surrender charges - FVLI............................... 0 0
Surrender charges - PrinFlex........................... (92,809) (45,269)
Surrender charges - SVUL............................... 36 (749)
---------------------------------------------
Net Increase from Policy Related Transactions 4,217,239 1,827,575
---------------------------------------------
Total Increase (2,035,729) (778,894)
---------------------------------------------
Net Assets at September 30, 2001 15,306,335 6,139,050
=============================================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 2001
(Unaudited)
INVESCO
INVESCO INVESCO VIF Small INVESCO Janus Aspen
VIF VIF Health Company VIF Aggressive
Dynamics Sciences Growth Technology Growth
Division Division Division Division Division
------------------------------------------------------------------------
Net Assets at January 1, 2001 0 0 0 0 0
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. (46) (166) (37) (128) (462)
Net realized gain (loss) on investments............... (1,012) (258) (7) (343) (4,623)
Change in net unrealized appr/depr..................... (6,369) (2,269) (4,181) (17,774) (59,042)
------------------------------------------------------------------------
Net Increase resulting from Operations (7,426) (2,694) (4,225) (18,245) (64,127)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 50,147 149,133 29,958 71,094 332,761
Contract terminations and surrenders - FVLI............ 0 0 0 0 0
Contract terminations and surrenders - PrinFlex........ 0 0 0 0 0
Contract terminations and surrenders - SVUL............ 0 0 0 0 0
Death benefit payments................................. 0 0 0 0 0
Policy loan transfers.................................. (193) 0 0 0 0
Transfers to other contracts........................... (17,025) (14,894) (182) (1,302) (59,684)
Cost of insurance and administration charges - FVLI.... 0 0 0 0 (204)
Cost of insurance and administration charges - PrinFlex (958) (3,847) (961) (1,926) (6,068)
Cost of insurance and administration charges - SVUL.... 0 (51) 0 (26) (5)
Surrender charges - FVLI............................... 0 0 0 0 0
Surrender charges - PrinFlex........................... 0 0 0 0 0
Surrender charges - SVUL............................... 0 0 0 0 0
------------------------------------------------------------------------
Net Increase from Policy Related Transactions 31,970 130,341 28,815 67,840 266,799
------------------------------------------------------------------------
Total Increase 24,544 127,648 24,590 49,596 202,672
------------------------------------------------------------------------
Net Assets at September 30, 2001 24,544 127,648 24,590 49,596 202,672
========================================================================
LargeCap
LargeCap Stock
Growth Index
Division Division
----------------------------------------------
Net Assets at January 1, 2001 0 12,276,884
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. (78) (83,007)
Net realized gain (loss) on investments............... (1,104) (178,185)
Change in net unrealized appr/depr..................... (8,438) (2,880,182)
---------------------------------------
Net Increase resulting from Operations (9,620) (3,141,374)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 87,508 6,146,053
Contract terminations and surrenders - FVLI............ 0 0
Contract terminations and surrenders - PrinFlex........ 0 (254,847)
Contract terminations and surrenders - SVUL............ 0 (54)
Death benefit payments................................. 0 (300,649)
Policy loan transfers.................................. 0 (29,690)
Transfers to other contracts........................... (27,305) (1,237,504)
Cost of insurance and administration charges - FVLI.... (65) (547)
Cost of insurance and administration charges - PrinFlex (1,908) (652,460)
Cost of insurance and administration charges - SVUL.... 0 (49,494)
Surrender charges - FVLI............................... 0 0
Surrender charges - PrinFlex........................... 0 (95,719)
Surrender charges - SVUL............................... 0 (944)
---------------------------------------
Net Increase from Policy Related Transactions 58,230 3,524,145
---------------------------------------
Total Increase 48,610 382,771
---------------------------------------
Net Assets at September 30, 2001 48,610 12,659,655
=======================================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 2001
(Unaudited)
MidCap
MidCap Growth MidCap
MicroCap MidCap Growth Equity Value
Division Division Division Division Division
--------------------------------------------------------------------
Net Assets at January 1, 2001 1,269,013 37,522,641 2,396,679 0 0
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. (9,195) 752,824 43,441 (149) (207)
Net realized gain (loss) on investments............... (2,283) 20,348 (55,904) (11,261) (4)
Change in net unrealized appr/depr..................... (261,990) (5,711,086) (1,072,241) (12,265) (8,705)
--------------------------------------------------------------------
Net Increase resulting from Operations (273,468) (4,937,914) (1,084,704) (23,675) (8,916)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 712,135 9,055,094 1,911,097 119,788 144,964
Contract terminations and surrenders - FVLI............ 0 (871,205) 0 0 0
Contract terminations and surrenders - PrinFlex........ (24,506) (476,748) (82,805) 0 0
Contract terminations and surrenders - SVUL............ (163) 0 0 0 0
Death benefit payments................................. (1,301) (22,706) (780) 0 0
Policy loan transfers.................................. 949 (1,118,613) (36,652) 0 (232)
Transfers to other contracts........................... (125,803) (2,140,836) (309,144) (47,545) (4,817)
Cost of insurance and administration charges - FVLI.... (45) (673,941) 0 0 (44)
Cost of insurance and administration charges - PrinFlex (80,407) (1,311,868) (234,024) (1,599) (4,023)
Cost of insurance and administration charges - SVUL.... (10,218) (10,993) (6,320) (11) (26)
Surrender charges - FVLI............................... 0 (36,655) 0 0 0
Surrender charges - PrinFlex........................... (9,204) (179,063) (31,101) 0 0
Surrender charges - SVUL............................... (2,843) 0 0 0 0
--------------------------------------------------------------------
Net Increase from Policy Related Transactions 458,593 2,212,466 1,210,271 70,634 135,823
--------------------------------------------------------------------
Total Increase 185,125 (2,725,448) 125,567 46,959 126,907
--------------------------------------------------------------------
Net Assets at September 30, 2001 1,454,138 34,797,193 2,522,246 46,959 126,907
====================================================================
Putnam VT
Global
Money Asset
Market Allocation
Division Division
-----------------------------------------
Net Assets at January 1, 2001 18,255,616 944,197
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. 527,828 121,799
Net realized gain (loss) on investments............... 0 (22,335)
Change in net unrealized appr/depr..................... (87) (310,184)
-----------------------------------------
Net Increase resulting from Operations 527,741 (210,720)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 56,610,987 687,569
Contract terminations and surrenders - FVLI............ (3,631) 0
Contract terminations and surrenders - PrinFlex........ (643,791) (11,864)
Contract terminations and surrenders - SVUL............ (567) 0
Death benefit payments................................. (26,378) 0
Policy loan transfers.................................. (143,205) (2,445)
Transfers to other contracts........................... (44,683,552) (67,830)
Cost of insurance and administration charges - FVLI.... (49,242) 0
Cost of insurance and administration charges - PrinFlex (2,409,245) (98,086)
Cost of insurance and administration charges - SVUL.... (157,558) (9,789)
Surrender charges - FVLI............................... (153) 0
Surrender charges - PrinFlex........................... (241,803) (4,456)
Surrender charges - SVUL............................... (9,920) 0
-----------------------------------------
Net Increase from Policy Related Transactions 8,241,941 493,098
-----------------------------------------
Total Increase 8,769,682 282,378
-----------------------------------------
Net Assets at September 30, 2001 27,025,298 1,226,575
=========================================
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 2001
(Unaudited)
Putnam VT Putnam VT Real
Vista Voyager Estate SmallCap
Division Division Division Division
-----------------------------------------------------------------------
Net Assets at January 1, 2001 5,249,045 19,058,561 1,001,550 1,958,266
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. 637,747 4,154,167 (10,152) (16,918)
Net realized gain (loss) on investments............... (336,719) (258,404) 9,532 (18,224)
Change in net unrealized appr/depr..................... (3,935,908) (10,952,297) 120,421 (598,353)
-----------------------------------------------------------------------
Net Increase resulting from Operations (3,634,880) (7,056,534) 119,801 (633,495)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 5,349,203 10,299,930 2,807,739 1,933,660
Contract terminations and surrenders - FVLI............ 0 0 0 0
Contract terminations and surrenders - PrinFlex........ (64,414) (307,833) (18,645) (33,630)
Contract terminations and surrenders - SVUL............ (37) (310) 0 0
Death benefit payments................................. (93) (102) 0 (444)
Policy loan transfers.................................. (47,302) (134,356) (2,097) (20,726)
Transfers to other contracts........................... (1,354,069) (1,606,677) (909,512) (301,292)
Cost of insurance and administration charges - FVLI.... 0 (123) (76) (12)
Cost of insurance and administration charges - PrinFlex (562,952) (1,733,607) (98,289) (227,804)
Cost of insurance and administration charges - SVUL.... (33,437) (86,286) (76,428) (10,110)
Surrender charges - FVLI............................... 0 0 0 0
Surrender charges - PrinFlex........................... (24,193) (115,620) (7,003) (12,631)
Surrender charges - SVUL............................... (645) (5,424) 0 0
-----------------------------------------------------------------------
Net Increase from Policy Related Transactions 3,262,060 6,309,592 1,695,690 1,327,010
-----------------------------------------------------------------------
Total Increase (372,819) (746,942) 1,815,491 693,515
-----------------------------------------------------------------------
Net Assets at September 30, 2001 4,876,226 18,311,619 2,817,041 2,651,781
=======================================================================
SmallCap SmallCap
Growth Value Utilities
Division Division Division
------------------------------------------------------------
Net Assets at January 1, 2001 8,419,398 1,737,646 1,392,047
Increase (decrease) in Net Assets from Operations:
Net investment income.................................. (64,367) (16,109) (11,010)
Net realized gain (loss) on investments............... (200,476) 27,852 (5,501)
Change in net unrealized appr/depr..................... (5,216,930) (429,911) (532,412)
----------------------------------------------------------
Net Increase resulting from Operations (5,481,773) (418,168) (548,923)
Policy related transactions (Note 2):
Net premium payments, less sales charges
and applicable premium taxes......................... 6,756,874 4,402,938 1,623,176
Contract terminations and surrenders - FVLI............ 0 0 0
Contract terminations and surrenders - PrinFlex........ (101,101) (27,329) (29,727)
Contract terminations and surrenders - SVUL............ (145) 0 (22)
Death benefit payments................................. (1,136) 0 (6,804)
Policy loan transfers.................................. (43,345) (36,291) (7,051)
Transfers to other contracts........................... (1,427,060) (1,284,142) (352,788)
Cost of insurance and administration charges - FVLI.... 0 (193) (76)
Cost of insurance and administration charges - PrinFlex (824,906) (161,670) (142,140)
Cost of insurance and administration charges - SVUL.... (42,815) (6,781) (8,715)
Surrender charges - FVLI............................... 0 0 0
Surrender charges - PrinFlex........................... (37,973) (10,265) (11,165)
Surrender charges - SVUL............................... (2,532) 0 (381)
----------------------------------------------------------
Net Increase from Policy Related Transactions 4,275,861 2,876,267 1,064,304
----------------------------------------------------------
Total Increase (1,205,912) 2,458,098 515,381
----------------------------------------------------------
Net Assets at September 30, 2001 7,213,486 4,195,744 1,907,428
==========================================================
Report of Independent Auditors
Board of Directors and Participants
Principal Life Insurance Company
We have audited the accompanying individual and combined statements of net
assets of Principal Life Insurance Company Variable Life Separate Account
(comprised of the Aggressive Growth, Asset Allocation, Balanced, Bond, Capital
Value, Fidelity Contrafund, Fidelity Equity Income, Fidelity High Income,
Government Securities, Growth, High Yield, International, International
SmallCap, LargeCap Stock Index, MicroCap, MidCap, MidCap Growth, Money Market,
Putnam Global Asset Allocation, Putnam Vista, Putnam Voyager, Real Estate,
SmallCap, SmallCap Growth, SmallCap Value, and Utilities Divisions) as of
December 31, 2000, and the related statements of operations and changes in net
assets for each of the three years in the period then ended, except for those
divisions operating for portions of such periods as disclosed in the financial
statements. These financial statements are the responsibility of the management
of Principal Life Insurance Company. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 2000, by
correspondence with the transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
respective divisions of Principal Life Insurance Company Variable Life Separate
Account at December 31, 2000, and the individual and combined results of their
operations and the changes in their net assets for the periods described above,
in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 9, 2001
Principal Life Insurance Company
Variable Life Separate Account
Statements of Net Assets
December 31, 2000
Assets
Investments:
Aggressive Growth Division:
Aggressive Growth Account - 2,256,883 shares at net asset value of $20.37 per
share (cost - $46,719,608) $ 45,972,711
Asset Allocation Division:
Asset Allocation Account - 459,836 shares at net asset value of $12.02 per share
(cost - $5,926,974) 5,527,233
Balanced Division:
Balanced Account - 776,244 shares at net asset value of $15.43 per share
(cost - $12,067,919) 11,977,437
Bond Division:
Bond Account - 770,911 shares at net asset value of $11.78 per share
(cost - $8,896,611) 9,081,333
Capital Value Division:
Capital Value Account - 928,689 shares at net asset value of $30.72 per share
(cost - $30,823,307) 28,529,336
Fidelity Contrafund Division:
Fidelity Variable Insurance Products Fund II: Contrafund Portfolio -
1,490,541 shares at net asset value of $23.74 per share (cost - $36,425,024) 35,385,437
Fidelity Equity Income Division:
Fidelity Variable Insurance Products Fund: Equity Income Portfolio -
532,017 shares at net asset value of $25.52 per share (cost - $12,913,433) 13,577,072
Fidelity High Income Division:
Fidelity Variable Insurance Products Fund: High Income Portfolio - 222,675 shares
at net asset value of $8.18 per share (cost - $2,400,343) 1,821,483
Government Securities Division:
Government Securities Account - 296,896 shares at net asset value of $11.43 per
share (cost - $3,223,472) 3,393,527
Growth Division:
Growth Account - 897,141 shares at net asset value of $16.43 per share
(cost - $17,838,029) 14,740,033
High Yield Division:
High Yield Account - 252,365 shares at net asset value of $6.41 per share
(cost - $2,097,132) 1,617,658
International Division:
International Account - 1,247,631 shares at net asset value of $13.90 per share
(cost - $18,775,878) 17,342,064
International SmallCap Division:
International SmallCap Account - 498,770 shares at net asset value of $13.87 per
share (cost - $7,897,848) $ 6,917,944
LargeCap Stock Index Division:
LargeCap Stock Index Account - 1,289,589 shares at net asset value of $9.52 per
share (cost - $13,089,754) 12,276,884
MicroCap Division:
MicroCap Account - 141,001 shares at net asset value of $9.00 per share
(cost - $1,273,531) 1,269,013
MidCap Division:
MidCap Account - 1,088,559 shares at net asset value of $34.47 per share
(cost - $35,764,004) 37,522,641
MidCap Growth Division:
MidCap Growth Account - 229,128 shares at net asset value of $10.46 per share
(cost - $2,449,528) 2,396,679
Money Market Division:
Money Market Account - 18,255,616 shares at net asset value of $1.00 per share
(cost - $18,255,616) 18,255,616
Putnam Global Asset Allocation Division:
Putnam Variable Trust: Global Asset Allocation Fund - 56,641 shares at net asset
value of $16.67 per share (cost - $1,008,219) 944,197
Putnam Vista Division:
Putnam Variable Trust: Vista Fund - 267,808 shares at net asset value of $19.60
per share (cost - $5,777,489) 5,249,045
Putnam Voyager Division:
Putnam Variable Trust: Voyager Fund - 391,829 shares at net asset value of $48.64
per share (cost - $21,821,310) 19,058,561
Real Estate Division:
Real Estate Account - 97,332 shares at net asset value of $10.29 per share
(cost - $971,240) 1,001,550
SmallCap Division:
SmallCap Account - 250,098 shares at net asset value of $7.83 per share
(cost - $2,419,189) 1,958,266
SmallCap Growth Division:
SmallCap Growth Account - 540,051 shares at net asset value of $15.59 per share
(cost - $10,019,989) 8,419,398
SmallCap Value Division:
SmallCap Value Account - 154,320 shares at net asset value of $11.26 per share
(cost - $1,654,296) 1,737,646
Utilities Division:
Utilities Account - 111,991 shares at net asset value of $12.43 per share
(cost - $1,295,546) 1,392,047
--------------------
Combined net assets $307,364,811
====================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Net Assets (continued)
December 31, 2000
Unit
Units Value
----------------------------
----------------------------
Net assets are represented by:
Aggressive Growth Division:
PrinFlex Life 2,464,515 $18.16 $ 44,753,095
Survivorship Variable Universal Life 111,696 10.92 1,219,616
-------------------
45,972,711
Asset Allocation Division:
PrinFlex Life 330,942 15.26 5,049,325
Survivorship Variable Universal Life 42,349 11.29 477,908
--------------------
5,527,233
Balanced Division:
Flex Variable Life 121,505 29.95 3,639,550
PrinFlex Life 612,393 13.26 8,119,788
Survivorship Variable Universal Life 21,905 9.96 218,099
--------------------
11,977,437
Bond Division:
Flex Variable Life 66,498 24.82 1,650,255
PrinFlex Life 582,589 12.45 7,253,705
Survivorship Variable Universal Life 16,360 10.84 177,373
--------------------
9,081,333
Capital Value Division:
Flex Variable Life 220,576 36.53 8,056,286
PrinFlex Life 1,462,363 13.90 20,331,641
Survivorship Variable Universal Life 15,064 9.39 141,409
--------------------
28,529,336
Fidelity Contrafund Division:
PrinFlex Life 1,870,108 18.27 34,165,250
Survivorship Variable Universal Life 115,073 10.60 1,220,187
--------------------
35,385,437
Fidelity Equity Income Division:
PrinFlex Life 828,884 15.78 13,079,878
Survivorship Variable Universal Life 47,161 10.54 497,194
--------------------
13,577,072
Fidelity High Income Division:
PrinFlex Life 191,185 9.24 1,766,502
Survivorship Variable Universal Life 7,048 7.80 54,981
--------------------
--------------------
1,821,483
Government Securities Division:
PrinFlex Life 249,262 13.14 3,275,712
Survivorship Variable Universal Life 10,415 11.31 117,815
--------------------
3,393,527
Growth Division:
PrinFlex Life 918,036 $15.40 $ 14,141,233
Survivorship Variable Universal Life 61,041 9.81 598,800
--------------------
14,740,033
High Yield Division - Flex Variable Life 78,929 20.50 1,617,658
International Division:
PrinFlex Life 1,218,442 13.91 16,951,351
Survivorship Variable Universal Life 36,854 10.60 390,713
--------------------
17,342,064
International SmallCap Division:
PrinFlex Life 410,158 15.53 6,369,250
Survivorship Variable Universal Life 41,551 13.21 548,694
--------------------
6,917,944
LargeCap Stock Index Division:
PrinFlex Life 1,160,433 9.98 11,581,287
Survivorship Variable Universal Life 69,432 10.02 695,597
--------------------
12,276,884
MicroCap Division:
PrinFlex Life 93,698 9.07 849,676
Survivorship Variable Universal Life 41,040 10.22 419,337
--------------------
1,269,013
MidCap Division:
Flex Variable Life 270,410 52.38 14,164,162
PrinFlex Life 1,440,670 16.15 23,270,443
Survivorship Variable Universal Life 6,883 12.79 88,036
--------------------
37,522,641
MidCap Growth Division:
PrinFlex Life 198,779 11.62 2,308,819
Survivorship Variable Universal Life 7,481 11.75 87,860
--------------------
2,396,679
Money Market Division:
Flex Variable Life 26,328 17.93 472,119
PrinFlex Life 1,384,368 12.24 16,941,801
Survivorship Variable Universal Life 77,857 10.81 841,696
--------------------
18,255,616
Putnam Global Asset Allocation Division:
PrinFlex Life 77,748 10.94 850,940
Survivorship Variable Universal Life 9,026 10.33 93,257
--------------------
944,197
Putnam Vista Division:
PrinFlex Life 326,362 $15.38 $ 5,018,092
Survivorship Variable Universal Life 17,302 13.35 230,953
--------------------
5,249,045
Putnam Voyager Division:
PrinFlex Life 1,227,585 14.30 17,553,809
Survivorship Variable Universal Life 126,566 11.89 1,504,752
--------------------
19,058,561
Real Estate Division
PrinFlex Life 62,805 11.70 734,933
Survivorship Variable Universal Life 21,169 12.59 266,617
--------------------
--------------------
1,001,550
SmallCap Division:
PrinFlex Life 184,090 10.13 1,865,420
Survivorship Variable Universal Life 8,807 10.54 92,846
--------------------
1,958,266
SmallCap Growth Division:
PrinFlex Life 446,771 17.29 7,725,206
Survivorship Variable Universal Life 50,714 13.69 694,192
--------------------
8,419,398
SmallCap Value Division:
PrinFlex Life 127,733 12.80 1,635,453
Survivorship Variable Universal Life 7,444 13.72 102,193
--------------------
1,737,646
Utilities Division:
PrinFlex Life 89,322 14.09 1,258,486
Survivorship Variable Universal Life 11,415 11.71 133,561
--------------------
1,392,047
--------------------
Combined net assets $307,364,811
====================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations
Years ended December 31, 2000, 1999 and 1998
Aggressive
Growth
Combined Division
---------------- --------------
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 2,481,753 $ -
Capital gains distributions 18,866,822 1,219,532
---------------- --------------
21,348,575 1,219,532
Expenses:
Mortality and expense risks 2,348,094 357,859
---------------- --------------
Net investment income (loss) 19,000,481 861,673
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (111,246) 146,570
Change in net unrealized appreciation or depreciation of investments (32,833,683) (7,649,724)
---------------- --------------
Net increase (decrease) in net assets resulting from operations $(13,944,448) $(6,641,481)
================ ==============
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 3,065,326 $
-
Capital gains distributions 9,306,861 2,005,405
---------------- --------------
12,372,187 2,005,405
Expenses:
Mortality and expense risks 1,367,910 182,021
---------------- --------------
Net investment income (loss) 11,004,277 1,823,384
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 646,392 88,148
Change in net unrealized appreciation or depreciation of investments 11,074,319 6,010,958
---------------- --------------
Net increase (decrease) in net assets resulting from operations $ 22,724,988 $ 7,922,490
================ ==============
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ 1,927,629 $ 25,269
Capital gains distributions 3,545,632 576,813
---------------- --------------
5,473,261 602,082
Expenses:
Mortality and expense risks 736,803 74,911
---------------- --------------
Net investment income (loss) 4,736,458 527,171
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 1,677,430 11,214
Change in net unrealized appreciation or depreciation of investments 1,393,781 947,122
---------------- --------------
Net increase (decrease) in net assets resulting from operations $ 7,807,669 $ 1,485,507
================ ==============
See accompanying notes.
Asset Capital Value
Allocation Balanced Bond Division
Division Division Division
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Investment income (loss)
Income:
Dividends $140,582 $ - $ - $ 448,738
Capital gains distributions 401,133 - - 135,404
- ------------------------------------------------------------------------------------------------------------------------------------
41,715 - - 584,142
Expenses:
Mortality and expense risks 37,864 104,162 70,481 253,147
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 503,851 (104,162) (70,481) 330,995
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 9,480 (52,909) (67,172) (899,891)
Change in net unrealized appreciation or depreciation of investments (522,565) 67,563 710,421 950,640
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (9,234) $ (89,508) $ 572,768 $ 381,744
====================================================================================================================================
Year ended December 31, 1999
Investment income (loss)
Income:
Dividends $ 72,994 $421,363 $ 423,106 $ 631,298
Capital gains distributions 220,018 458,007 - 3,121,167
- ------------------------------------------------------------------------------------------------------------------------------------
293,012 879,370 423,106 3,752,465
Expenses:
Mortality and expense risks 20,257 93,638 47,388 227,884
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 272,755 785,732 375,718 3,524,581
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 18,368 77,332 (8,182) 207,213
Change in net unrealized appreciation or depreciation of investments 136,643 (695,498) (552,153) (5,167,258)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $427,766 $167,566 $(184,617) $(1,435,464)
====================================================================================================================================
Year ended December 31, 1998
Investment income (loss)
Income:
Dividends $ 37,595 $278,168 $ 200,418 $ 398,541
Capital gains distributions 39,061 298,323 2,083 748,100
- ------------------------------------------------------------------------------------------------------------------------------------
76,656 576,491 202,501 1,146,641
Expenses:
Mortality and expense risks 9,173 63,126 24,494 136,738
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 67,483 513,365 178,007 1,009,903
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (1,770) 161,523 33,503 281,655
Change in net unrealized appreciation or depreciation of investments 10,057 118,060 (19,726) 461,090
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 75,770 $792,948 $ 191,784 $ 1,752,648
====================================================================================================================================
Fidelity
Contrafund
Division
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Investment income (loss)
Income:
Dividends $ 84,138
Capital gains distributions 3,054,223
- --------------------------------------------------------------------------------------------------
3,138,361
Expenses:
Mortality and expense risks 254,559
- --------------------------------------------------------------------------------------------------
Net investment income (loss) 2,883,802
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 32,714
Change in net unrealized appreciation or depreciation of investments (5,395,041)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(2,478,525)
==================================================================================================
Year ended December 31, 1999
Investment income (loss)
Income:
Dividends $ 45,256
Capital gains distributions 331,881
- --------------------------------------------------------------------------------------------------
377,137
Expenses:
Mortality and expense risks 115,541
- --------------------------------------------------------------------------------------------------
Net investment income (loss) 261,596
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 36,522
Change in net unrealized appreciation or depreciation of investments 3,000,192
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 3,298,310
==================================================================================================
Year ended December 31, 1998
Investment income (loss)
Income:
Dividends $ 17,790
Capital gains distributions 130,883
- --------------------------------------------------------------------------------------------------
148,673
Expenses:
Mortality and expense risks 37,872
- --------------------------------------------------------------------------------------------------
Net investment income (loss) 110,801
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 12,594
Change in net unrealized appreciation or depreciation of investments 1,240,221
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $1,363,616
==================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
Years ended December 31, 2000, 1999 and 1998
Fidelity Fidelity High Government
Equity Income Income Division Securities
Division Division
--------------- ---------------- --------------
Year ended December 31, 2000
Investment income (loss) Income:
Dividends $167,161 $ 112,140 $ -
Capital gains distributions 629,770 - -
--------------- ---------------- --------------
796,931 112,140 -
Expenses:
Mortality and expense risks 100,688 16,875 24,903
--------------- ---------------- --------------
Net investment income (loss) 696,243 95,265 (24,903)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (36,409) (46,430) (73,232)
Change in net unrealized appreciation or depreciation of investments 320,251 (528,218) 358,676
--------------- ---------------- ---------------
Net increase (decrease) in net assets resulting from operations $980,085 $(479,383) $260,541
=============== ================ ==============
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 81,671 $ 107,614 $181,309
Capital gains distributions 180,535 4,023 -
--------------- ---------------- --------------
262,206 111,637 181,309
Expenses:
Mortality and expense risks 66,774 12,593 29,098
--------------- ---------------- --------------
Net investment income (loss) 195,432 99,044 152,211
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 26,811 (18,366) (23,023)
Change in net unrealized appreciation or depreciation of investments 51,551 9,792 (179,101)
--------------- ---------------- --------------
Net increase (decrease) in net assets resulting from operations $273,794 $ 90,470 $ (49,913)
=============== ================ ==============
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ 18,251 $ 31,106 $111,671
Capital gains distributions 64,952 19,765 -
--------------- ---------------- --------------
83,203 50,871 111,671
Expenses:
Mortality and expense risks 24,478 7,171 14,161
--------------- ---------------- --------------
Net investment income (loss) 58,725 43,700 97,510
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 5,628 (11,177) 1,370
Change in net unrealized appreciation or depreciation of investments 219,300 (81,364) (6,358)
--------------- ---------------- --------------
Net increase (decrease) in net assets resulting from operations $283,653 $ (48,841) $ 92,522
=============== ================ ==============
(1) Commenced operations May 1, 1998.
(2) Commenced operations May 1, 1999.
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
Years ended December 31, 2000, 1999 and 1998
Growth
Division
--------------
Year ended December 31, 2000
Investment income (loss) Income:
Dividends $ -
Capital gains distributions 2,991,447
--------------
2,991,447
Expenses:
Mortality and expense risks 120,729
--------------
Net investment income (loss) 2,870,718
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 27,791
Change in net unrealized appreciation or depreciation of investments (4,702,775)
--------------
Net increase (decrease) in net assets resulting from operations $(1,804,266)
==============
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 61,438
Capital gains distributions 26,610
--------------
88,048
Expenses:
Mortality and expense risks 65,974
--------------
Net investment income (loss) 22,074
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 35,999
Change in net unrealized appreciation or depreciation of investments 1,136,770
--------------
Net increase (decrease) in net assets resulting from operations $ 1,194,843
==============
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ 46,962
Capital gains distributions 44,586
--------------
91,548
Expenses:
Mortality and expense risks 22,163
--------------
Net investment income (loss) 69,385
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 8,386
Change in net unrealized appreciation or depreciation of investments 437,013
--------------
Net increase (decrease) in net assets resulting from operations $ 514,784
==============
(1) Commenced operations May 1, 1998.
(2) Commenced operations May 1, 1999.
See accompanying notes.
High International
Yield International SmallCap
Division Division Division (1)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Investment income (loss)
Income:
Dividends $159,252 $ 115,474 $ -
Capital gains distributions - 687,531 362,609
- -----------------------------------------------------------------------------------------------------------------------------
159,252 803,005 362,609
Expenses:
Mortality and expense risks 12,260 139,590 45,118
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 146,992 663,415 317,491
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (36,162) 10,274 137,726
Change in net unrealized appreciation or depreciation of investments (199,645) (2,202,921) (1,565,735)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (88,815) $(1,529,232) $(1,110,518)
=============================================================================================================================
Year ended December 31, 1999
Investment income (loss)
Income:
Dividends $156,525 $ 331,297 $ -
Capital gains distributions - 1,187,285 77,693
- -----------------------------------------------------------------------------------------------------------------------------
156,525 1,518,582 77,693
Expenses:
Mortality and expense risks 15,977 88,959 6,069
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 140,548 1,429,623 71,624
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (83,063) 34,900 29,313
Change in net unrealized appreciation or depreciation of investments (35,529) 942,834 570,819
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 21,956 $2,407,357 $ 671,756
=============================================================================================================================
Year ended December 31, 1998
Investment income (loss)
Income:
Dividends $202,766 $ 118,274 $ 851
Capital gains distributions - 238,049 -
- -----------------------------------------------------------------------------------------------------------------------------
202,766 356,323 851
Expenses:
Mortality and expense risks 16,917 47,404 732
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 185,849 308,919 119
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (1,713) 5,582 (148)
Change in net unrealized appreciation or depreciation of investments (222,572) (8,068) 15,012
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (38,436) $ 306,433 $ 14,983
=============================================================================================================================
LargeCap
Stock Index MicroCap
Division (2) Division (1)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Investment income (loss)
Income:
Dividends $ 102,989 $ 6,198
Capital gains distributions 41,453 -
- --------------------------------------------------------------------------------------------------------------
144,442 6,198
Expenses:
Mortality and expense risks 72,122 7,677
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 72,320 (1,479)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 153 32,846
Change in net unrealized appreciation or depreciation of investments (1,133,899) (737)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,061,426) $30,630
==============================================================================================================
Year ended December 31, 1999
Investment income (loss)
Income:
Dividends $ 27,669 $ 614
Capital gains distributions 35,810 -
- --------------------------------------------------------------------------------------------------------------
63,479 614
Expenses:
Mortality and expense risks 15,615 2,622
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 47,864 (2,008)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 377 539
Change in net unrealized appreciation or depreciation of investments 321,029 (4,874)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 369,270 $ (6,343)
==============================================================================================================
Year ended December 31, 1998
Investment income (loss)
Income:
Dividends $ - $ 620
Capital gains distributions - -
- --------------------------------------------------------------------------------------------------------------
- 620
Expenses:
Mortality and expense risks - 326
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) - 294
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - (681)
Change in net unrealized appreciation or depreciation of investments - 1,093
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ 706
==============================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
Years ended December 31, 2000, 1999 and 1998
MidCap Money Market
MidCap Growth Division
Division Division (1)
--------------- -------------- ---------------
Year ended December 31, 2000
Investment income (loss) Income:
Dividends $ 96,220 $ 4,159 $947,987
Capital gains distributions 6,502,170 199,447 -
--------------- -------------- ---------------
6,598,390 203,606 947,987
Expenses:
Mortality and expense risks 272,454 13,595 185,639
--------------- -------------- ---------------
Net investment income (loss) 6,325,936 190,011 762,348
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 396,277 26,224 -
Change in net unrealized appreciation or depreciation of investments (2,361,754) (163,442) -
--------------- -------------- ---------------
Net increase (decrease) in net assets resulting from operations $4,360,459 $ 52,793 $762,348
=============== ============== ===============
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 93,198 $ 1,567 $407,602
Capital gains distributions 1,313,207 - -
--------------- -------------- ---------------
1,406,405 1,567 407,602
Expenses:
Mortality and expense risks 228,629 5,079 93,734
--------------- -------------- ---------------
Net investment income (loss) 1,177,776 (3,512) 313,868
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 142,810 9,001 -
Change in net unrealized appreciation or depreciation of investments 2,019,372 82,583 -
--------------- -------------- ---------------
--------------- -------------- ---------------
Net increase (decrease) in net assets resulting from operations $3,339,958 $ 88,072 $313,868
=============== ============== ===============
=============== ============== ===============
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ 146,679 $ - $290,641
Capital gains distributions 1,383,017 - -
--------------- -------------- ---------------
--------------- -------------- ---------------
1,529,696 - 290,641
Expenses:
Mortality and expense risks 185,626 637 67,849
--------------- -------------- ---------------
--------------- -------------- ---------------
Net investment income (loss) 1,344,070 (637) 222,792
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 1,170,701 249 -
Change in net unrealized appreciation or depreciation of investments (1,927,129) 28,009 -
--------------- -------------- ---------------
--------------- -------------- ---------------
Net increase (decrease) in net assets resulting from operations $ 587,642 $ 27,621 $222,792
=============== ============== ===============
(1) Commenced operations May 1, 1998.
See accompanying notes.
Putnam Global
Asset Allocation
Division (1)
--------------------
Year ended December 31, 2000
Investment income (loss) Income:
Dividends $ 9,533
Capital gains distributions 51,153
--------------------
60,686
Expenses:
Mortality and expense risks 6,544
--------------------
Net investment income (loss) 54,142
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (1,478)
Change in net unrealized appreciation or depreciation of investments (91,512)
--------------------
Net increase (decrease) in net assets resulting from operations $ (38,848)
====================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 3,412
Capital gains distributions 9,719
--------------------
13,131
Expenses:
Mortality and expense risks 2,385
--------------------
Net investment income (loss) 10,746
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 4,668
Change in net unrealized appreciation or depreciation of investments 23,177
--------------------
--------------------
Net increase (decrease) in net assets resulting from operations $ 38,591
====================
====================
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ -
Capital gains distributions -
--------------------
--------------------
-
Expenses:
Mortality and expense risks 120
--------------------
--------------------
Net investment income (loss) (120)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 140
Change in net unrealized appreciation or depreciation of investments 4,313
--------------------
--------------------
Net increase (decrease) in net assets resulting from operations $ 4,333
====================
(1) Commenced operations May 1, 1998.
See accompanying notes.
Putnam Vista Putnam Voyager
Division (1) Division (1) Real Estate
Division (1)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Investment income (loss)
Income:
Dividends $ - $ 778 $37,862
Capital gains distributions 20,972 1,650,707 -
---------------------------------------------------------------------------------------------------------------------------
20,972 1,651,485 37,862
Expenses:
Mortality and expense risks 27,026 134,312 2,771
---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (6,054) 1,517,173 35,091
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 23,433 25 12,346
Change in net unrealized appreciation or depreciation of investments (730,737) (5,168,799) 35,647
---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(713,358) $(3,651,601) $83,084
===========================================================================================================================
Year ended December 31, 1999
Investment income (loss)
Income:
Dividends $ - $ 1,764 $ 3,569
Capital gains distributions 62,859 163,482 -
---------------------------------------------------------------------------------------------------------------------------
62,859 165,246 3,569
Expenses:
Mortality and expense risks 2,960 29,437 376
---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 59,899 135,809 3,193
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 5,780 16,417 (785)
Change in net unrealized appreciation or depreciation of investments 181,556 2,300,449 (5,017)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 247,235 $ 2,452,675 $ (2,609)
===========================================================================================================================
===========================================================================================================================
Year ended December 31, 1998
Investment income (loss)
Income:
Dividends $ - $ - $ 867
Capital gains distributions - - -
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
- - 867
Expenses:
Mortality and expense risks 174 1,414 56
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (174) (1,414) 811
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 252 45 (64)
Change in net unrealized appreciation or depreciation of investments 20,737 105,601 (320)
===========================================================================================================================
---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 20,815 $ 104,232 $ 427
===========================================================================================================================
SmallCap
SmallCap Growth
Division (1) Division (1)
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Investment income (loss)
Income:
Dividends $ 5,550 $ -
Capital gains distributions 273,379 492,430
-------------------------------------------------------------------------------------------------------------
278,929 492,430
Expenses:
Mortality and expense risks 16,009 56,013
-------------------------------------------------------------------------------------------------------------
Net investment income (loss) 262,920 436,417
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 28,981 71,121
Change in net unrealized appreciation or depreciation of investments (618,008) (2,338,388)
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(326,107) $(1,830,850)
=============================================================================================================
Year ended December 31, 1999
Investment income (loss)
Income:
Dividends $ 331 $
-
Capital gains distributions 88,145 19,242
-------------------------------------------------------------------------------------------------------------
88,476 19,242
Expenses:
Mortality and expense risks 4,836 5,327
-------------------------------------------------------------------------------------------------------------
Net investment income (loss) 83,640 13,915
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 10,826 30,664
Change in net unrealized appreciation or depreciation of investments 145,118 705,827
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 239,584 $ 750,406
=============================================================================================================
=============================================================================================================
Year ended December 31, 1998
Investment income (loss)
Income:
Dividends 24 $ -
Capital gains distributions - -
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
24 -
Expenses:
Mortality and expense risks 557 385
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Net investment income (loss) (533) (385)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (75) (20)
Change in net unrealized appreciation or depreciation of investments 11,967 31,970
=============================================================================================================
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 11,359 $ 31,565
=============================================================================================================
SmallCap Value
Division (1) Utilities
Division (1)
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Investment income (loss)
Income:
Dividends $ 16,994 $ 25,998
Capital gains distributions 131,634 21,828
-------------------------------------------------------------------------------------------------------------
148,628 47,826
Expenses:
Mortality and expense risks 8,739 6,958
-------------------------------------------------------------------------------------------------------------
Net investment income (loss) 139,889 40,868
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 127,192 19,284
Change in net unrealized appreciation or depreciation of investments (543) 97,562
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $266,538 $157,714
=============================================================================================================
Year ended December 31, 1999
Investment income (loss)
Income:
Dividends $ 3,592 $ 8,137
Capital gains distributions - 1,773
-------------------------------------------------------------------------------------------------------------
3,592 9,910
Expenses:
Mortality and expense risks 2,821 1,916
-------------------------------------------------------------------------------------------------------------
Net investment income (loss) 771 7,994
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 2,968 1,155
Change in net unrealized appreciation or depreciation of investments 78,477 (3,398)
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 82,216 $ 5,751
=============================================================================================================
=============================================================================================================
Year ended December 31, 1998
Investment income (loss)
Income:
Dividends $ 512 $ 624
Capital gains distributions - -
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
512 624
Expenses:
Mortality and expense risks 255 64
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Net investment income (loss) 257 560
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (136) 372
Change in net unrealized appreciation or depreciation of investments 5,416 2,337
=============================================================================================================
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 5,537 $ 3,269
=============================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets
Year ended December 31, 2000
Aggressive Asset
Growth Division Allocation
Combined Division
---------------------------------------------------
---------------------------------------------------
Net assets at January 1, 2000 $214,751,457 $33,093,420 $3,132,463
Increase (decrease) in net assets
Operations:
Net investment income (loss) 19,000,481 861,673 503,851
Net realized gains (losses) on investments (111,246) 146,570 9,480
Change in net unrealized appreciation or depreciation of investments (32,833,683) (7,649,724) (522,565)
---------------------------------------------------
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations (13,944,448) (6,641,481) (9,234)
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
255,193,157 29,758,309 3,289,056
Contract terminations and surrenders (6,730,897) (902,757) (65,587)
Death benefit payments (213,260) (19,750) -
Policy loan transfers (4,161,013) (797,276) (26,235)
Transfers to other contracts (108,204,769) (3,750,874) (365,808)
Cost of insurance and administration charges (26,531,044) (4,191,357) (385,961)
Surrender charges (2,794,372) (575,523) (41,461)
---------------------------------------------------
---------------------------------------------------
Increase (decrease) in net assets from policy related transactions 106,557,802 19,520,772 2,404,004
---------------------------------------------------
---------------------------------------------------
Total increase (decrease) 92,613,354 12,879,291 2,394,770
---------------------------------------------------
---------------------------------------------------
Net assets at December 31, 2000 $307,364,811 $45,972,711 $5,527,233
===================================================
---------------------------------------------------
Balanced Bond
Division Division
----------------------------------
----------------------------------
Net assets at January 1, 2000 $12,297,279 $6,647,735
Increase (decrease) in net assets
Operations:
Net investment income (loss) (104,162) (70,481)
Net realized gains (losses) on investments (52,909) (67,172)
Change in net unrealized appreciation or depreciation of investments 67,563 710,421
----------------------------------
----------------------------------
Net increase (decrease) in net assets resulting from operations (89,508) 572,768
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
4,313,099 4,695,877
Contract terminations and surrenders (453,456) (224,651)
Death benefit payments (21,288) (6,705)
Policy loan transfers (227,754) (112,479)
Transfers to other contracts (2,699,004) (1,602,705)
Cost of insurance and administration charges (1,007,392) (813,559)
Surrender charges (134,539) (74,948)
----------------------------------
----------------------------------
Increase (decrease) in net assets from policy related transactions (230,334) 1,860,830
----------------------------------
----------------------------------
Total increase (decrease) (319,842) 2,433,598
----------------------------------
----------------------------------
Net assets at December 31, 2000 $11,977,437 $9,081,333
==================================
See accompanying notes.
Capital Fidelity Fidelity Fidelity High
Value Contrafund Equity Income Income Division
Division Division Division
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
Net assets at January 1, 2000 $28,453,464 $21,683,086 $ 9,373,498 $1,560,663
Increase (decrease) in net assets
Operations:
Net investment income (loss) 330,995 2,883,802 696,243 95,265
Net realized gains (losses) on investments (899,891) 32,714 (36,409) (46,430)
Change in net unrealized appreciation or
depreciation of investments 950,640 (5,395,041) 320,251 (528,218)
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
Net increase (decrease) in net assets
resulting from operations 381,744 (2,478,525) 980,085 (479,383)
Policy related transactions:
Net premium payments, less sales charges and
applicable premium taxes 11,696,805 23,219,618 7,043,890 1,436,160
Contract terminations and surrenders (992,682) (498,142) (184,398) (32,423)
Death benefit payments (43,189) (9,707) (1,690) (420)
Policy loan transfers (528,453) (592,880) 94,665 18,764
Transfers to other contracts (7,517,529) (2,678,220) (2,545,534) (444,922)
Cost of insurance and administration charges (2,638,433) (2,940,509) (1,065,441) (178,932)
Surrender charges (282,391) (319,284) (118,003) (20,496)
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
Increase (decrease) in net assets from policy
related transactions (305,872) 16,180,876 3,223,489 740,203
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
Total increase (decrease) 75,872 13,702,351 4,203,574 260,820
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
- ------------------------------------------------------------------------ ---------------- ---------------- ----------------
Net assets at December 31, 2000 $28,529,336 $35,385,437 $13,577,072 $1,821,483
======================================================================== ================ ================ ================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 2000
Government
Securities Growth Division High Yield International
Division Division Division
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at January 1, 2000 $3,117,503 $10,738,427 $1,689,069 $13,191,433
Increase (decrease) in net assets
Operations:
Net investment income (loss) (24,903) 2,870,718 146,992 663,415
Net realized gains (losses) on investments (73,232) 27,791 (36,162) 10,274
Change in net unrealized appreciation
or depreciation of investments 358,676 (4,702,775) (199,645) (2,202,921)
---------------------------------------------------------------
---------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 260,541 (1,804,266) (88,815) (1,529,232)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 1,932,137 9,674,355 301,781 10,086,587
Contract terminations and surrenders (37,495) (275,368) (78,725) (302,768)
Death benefit payments (3,138) (10,239) - (10,052)
Policy loan transfers (102,846) (262,492) 2,087 (232,123)
Transfers to other contracts (1,496,351) (1,629,892) (107,800) (2,294,330)
Cost of insurance and administration charges (253,121) (1,514,952) (95,536) (1,374,849)
Surrender charges (23,703) (175,540) (4,403) (192,602)
-------------------------------------------------------------
-------------------------------------------------------------
Increase (decrease) in net assets from policy
related transactions 15,483 5,805,872 17,404 5,679,863
---------------------------------------------------------------
---------------------------------------------------------------
Total increase (decrease) 276,024 4,001,606 (71,411) 4,150,631
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at December 31, 2000 $3,393,527 $14,740,033 $1,617,658 $17,342,064
===============================================================
See accompanying notes.
International LargeCap
SmallCap Stock Index MicroCap
Division Division Division
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 2000 $ 1,960,477 $ 6,704,714 $ 452,739
Increase (decrease) in net assets
Operations:
Net investment income (loss) 317,491 72,320 (1,479)
Net realized gains (losses) on investments 137,726 153 32,846
Change in net unrealized appreciation or depreciation of investments (1,565,735) (1,133,899) (737)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (1,110,518) (1,061,426) 30,630
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 10,571,353 7,825,895 1,556,542
Death benefit payments (68,238) (34,473) (13,200)
Policy loan transfers (1,345) (259) -
Transfers to other contracts (92,701) (92,383) (461)
Cost of insurance and administration charges (3,708,043) (452,491) (672,095)
Surrender charges (589,904) (589,691) (76,798)
Increase (decrease) in net assets from policy related transactions (43,137) (23,002) (8,344)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 6,067,985 6,633,596 785,644
- --------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 2000 4,957,467 5,572,170 816,274
- --------------------------------------------------------------------------------------------------------------------------
$ 6,917,944 $12,276,884 $1,269,013
==========================================================================================================================
MidCap Growth
MidCap Division Division
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Net assets at January 1, 2000 $30,767,163 $ 978,046
Increase (decrease) in net assets
Operations:
Net investment income (loss) 6,325,936 190,011
Net realized gains (losses) on investments 396,277 26,244
Change in net unrealized appreciation or depreciation of investments (2,361,754) (163,442)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 4,360,459 52,793
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 11,608,618 1,843,915
Death benefit payments (1,516,159) (25,571)
Policy loan transfers (69,784) -
Transfers to other contracts (603,290) (10,834)
Cost of insurance and administration charges (4,166,416) (251,257)
Surrender charges (2,529,480) (174,248)
Increase (decrease) in net assets from policy related transactions (328,470) (16,165)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total increase (decrease) 2,395,019 1,365,840
- -------------------------------------------------------------------------------------------------------------
Net assets at December 31, 2000 6,755,478 1,418,633
- -------------------------------------------------------------------------------------------------------------
$37,522,641 $2,396,679
=============================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 2000
Money Market Putnam Global Putnam Vista
Division Asset Allocation Division
Division
---------------------------------------------------------
---------------------------------------------------------
Net assets at January 1, 2000 $14,455,480 $422,470 $ 895,165
Increase (decrease) in net assets
Operations:
Net investment income (loss) 762,348 54,142 (6,054)
Net realized gains (losses) on investments - (1,478) 23,433
Change in net unrealized appreciation or depreciation of investments - (91,512) (730,737)
---------------------------------------------------------
---------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 762,348 (38,848) (713,358)
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
72,946,715 829,996 5,897,773
Contract terminations and surrenders (535,850) (12,947) (36,043)
Death benefit payments - - (6,712)
Policy loan transfers (61,746) (1,036) (91,942)
Transfers to other contracts (66,548,940) (149,689) (345,652)
Cost of insurance and administration charges (2,665,403) (96,360) (327,401)
Surrender charges (96,988) (9,389) (22,785)
---------------------------------------------------------
---------------------------------------------------------
Increase (decrease) in net assets from policy related transactions 3,037,788 560,575 5,067,238
---------------------------------------------------------
---------------------------------------------------------
Total increase (decrease) 3,800,136 521,727 4,353,880
---------------------------------------------------------
---------------------------------------------------------
Net assets at December 31, 2000 $18,255,616 $944,197 $5,249,045
=========================================================
See accompanying notes.
Putnam Voyager
Division
-----------------
-----------------
Net assets at January 1, 2000 $ 8,742,337
Increase (decrease) in net assets
Operations:
Net investment income (loss) 1,517,173
Net realized gains (losses) on investments 25
Change in net unrealized appreciation or depreciation of investments (5,168,799)
-----------------
-----------------
Net increase (decrease) in net assets resulting from operations (3,651,601)
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 18,048,445
(302,693)
Contract terminations and surrenders (5,327)
Death benefit payments (319,487)
Policy loan transfers (1,421,158)
Transfers to other contracts (1,837,210)
Cost of insurance and administration charges (194,745)
Surrender charges
-----------------
-----------------
Increase (decrease) in net assets from policy related transactions 13,967,825
-----------------
-----------------
Total increase (decrease) 10,316,224
-----------------
-----------------
Net assets at December 31, 2000 $19,058,561
=================
SmallCap
Real Estate SmallCap Growth
Division Division Division
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 2000 $ 73,623 $1,099,108 $2,161,250
Increase (decrease) in net assets
Operations:
Net investment income (loss) 35,091 262,920 436,417
Net realized gains (losses) on investments 12,346 28,981 71,121
Change in net unrealized appreciation or depreciation of investments 35,647 (618,008) (2,338,388)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 83,084 (326,107) (1,830,850)
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 1,174,224 1,965,594 9,746,782
Death benefit payments (6,695) (31,790) (73,949)
Policy loan transfers (109) (23) (1,523)
Transfers to other contracts (1,248) 53,381 (105,922)
Cost of insurance and administration charges (232,118) (584,563) (731,700)
Surrender charges (84,979) (197,216) (697,943)
Increase (decrease) in net assets from policy related transactions (4,232) (20,118) (46,747)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 844,843 1,185,265 8,088,998
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 2000 927,927 859,158 6,258,148
- -----------------------------------------------------------------------------------------------------------------------------
$1,001,550 $1,958,266 $8,419,398
=============================================================================================================================
SmallCap
Value Utilities
Division Division
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net assets at January 1, 2000 $ 623,561 $ 437,284
Increase (decrease) in net assets
Operations:
Net investment income (loss) 139,889 40,868
Net realized gains (losses) on investments 127,192 19,284
Change in net unrealized appreciation or depreciation of investments (543) 97,562
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 266,538 157,714
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 2,323,152 1,406,479
Death benefit payments (9,286) (15,551)
Policy loan transfers - (2,000)
Transfers to other contracts (22,793) (6,001)
Cost of insurance and administration charges (1,335,069) (472,609)
Surrender charges (102,587) (101,782)
Increase (decrease) in net assets from policy related transactions (5,870) (11,487)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total increase (decrease) 847,547 797,049
- ------------------------------------------------------------------------------------------------------------
Net assets at December 31, 2000 1,114,085 954,763
- ------------------------------------------------------------------------------------------------------------
$1,737,646 $1,392,047
============================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets
Year ended December 31, 1999
Aggressive Asset
Growth Division Allocation Balanced
Combined Division Division
--------------------------------------------------------------
--------------------------------------------------------------
Net assets at January 1, 1999 $121,091,275 $14,244,041 $1,592,829 $ 9,879,189
Increase (decrease) in net assets
Operations:
Net investment income (loss) 11,004,277 1,823,384 272,755 785,732
Net realized gains (losses) on investments 646,392 88,148 18,368 77,332
Change in net unrealized appreciation or
depreciation of investments 11,074,319 6,010,958 136,643 (695,498)
--------------------------------------------------------------
--------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 22,724,988 7,922,490 427,766 167,566
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 152,891,171 16,297,188 1,835,680 6,113,533
Contract terminations and surrenders (5,315,548) (453,060) (41,872) (449,646)
Death benefit payments (63,672) (7,313) (2,944) (4,689)
Policy loan transfers (2,471,181) (393,765) (64,353) (147,452)
Transfers to other contracts (54,484,314) (1,675,940) (337,090) (2,132,506)
Cost of insurance and administration charges (18,231,821) (2,653,004) (260,250) (1,020,029)
Surrender charges (1,389,441) (187,217) (17,303) (108,687)
--------------------------------------------------------------
--------------------------------------------------------------
Increase (decrease) in net assets
from policy related transactions 70,935,194 10,926,889 1,111,868 2,250,524
--------------------------------------------------------------
--------------------------------------------------------------
Total increase (decrease) 93,660,182 18,849,379 1,539,634 2,418,090
--------------------------------------------------------------
--------------------------------------------------------------
Net assets at December 31, 1999 $214,751,457 $33,093,420 $3,132,463 $12,297,279
==============================================================
See accompanying notes.
Capital Fidelity
Bond Value Contrafund
Division Division Division
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $3,953,245 $22,971,942 $ 8,023,001
Increase (decrease) in net assets
Operations:
Net investment income (loss) 375,718 3,524,581 261,596
Net realized gains (losses) on investments (8,182) 207,213 36,522
Change in net unrealized appreciation or depreciation of investments (552,153) (5,167,258) 3,000,192
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (184,617) (1,435,464) 3,298,310
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 5,045,651 14,665,546 13,567,422
Death benefit payments (341,883) (779,500) (229,535)
Policy loan transfers (1,456) (16,643) (4,835)
Transfers to other contracts 69,090 (159,843) (182,637)
Cost of insurance and administration charges (1,149,010) (4,080,476) (1,002,866)
Surrender charges (691,942) (2,533,293) (1,690,923)
Increase (decrease) in net assets from policy related transactions (51,343) (178,805) (94,851)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 2,879,107 6,916,986 10,361,775
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1999 2,694,490 5,481,522 13,660,085
- ------------------------------------------------------------------------------------------------------------------------------
$6,647,735 $28,453,464 $21,683,086
==============================================================================================================================
Fidelity Equity Fidelity High
Income Division Income Division
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $4,905,541 $1,064,791
Increase (decrease) in net assets
Operations:
Net investment income (loss) 195,432 99,044
Net realized gains (losses) on investments 26,811 (18,366)
Change in net unrealized appreciation or depreciation of investments 51,551 9,792
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 273,794 90,470
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 6,456,166 1,004,457
Death benefit payments (156,447) (70,361)
Policy loan transfers (221) (36)
Transfers to other contracts (174,979) 8,724
Cost of insurance and administration charges (976,597) (360,193)
Surrender charges (889,111) (148,114)
Increase (decrease) in net assets from policy related transactions (64,648) (29,075)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 4,194,163 405,402
- --------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1999 4,467,957 495,872
- --------------------------------------------------------------------------------------------------------------------
$9,373,498 $1,560,663
====================================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 1999
Government
Securities Growth Division High Yield International
Division Division Division
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at January 1, 1999 $3,266,712 $ 4,760,835 $2,269,099 $ 7,800,249
Increase (decrease) in net assets
Operations:
Net investment income (loss) 152,211 22,074 140,548 1,429,623
Net realized gains (losses) on investments (23,023) 35,999 (83,063) 34,900
Change in net unrealized appreciation or
depreciation of investments (179,101) 1,136,770 (35,529) 942,834
---------------------------------------------------------------
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (49,913) 1,194,843 21,956 2,407,357
Policy related transactions:
Net premium payments, less sales charges and
applicable premium taxes 2,370,343 7,116,531 435,443 6,417,856
Contract terminations and surrenders (11,368) (174,656) (706,562) (171,017)
Death benefit payments (90) (80) (1,481) (403)
Policy loan transfers 3,547 (137,542) (19,235) (167,118)
Transfers to other contracts (2,222,249) (933,539) (136,183) (1,986,291)
Cost of insurance and administration charges (234,781) (1,015,792) (128,426) (1,038,531)
Surrender charges (4,698) (72,173) (45,542) (70,669)
---------------------------------------------------------------
---------------------------------------------------------------
Increase (decrease) in net assets from
policy related transactions (99,296) 4,782,749 (601,986) 2,983,827
---------------------------------------------------------------
---------------------------------------------------------------
Total increase (decrease) (149,209) 5,977,592 (580,030) 5,391,184
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at December 31, 1999 $3,117,503 $10,738,427 $1,689,069 $13,191,433
===============================================================
---------------------------------------------------------------
===============================================================
(1) Commenced operations May 1, 1999.
See accompanying notes.
International LargeCap
SmallCap Stock Index MicroCap
Division Division (1) Division
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $ 316,190 $ - $149,378
Increase (decrease) in net assets
Operations:
Net investment income (loss) 71,624 47,864 (2,008)
Net realized gains (losses) on investments 29,313 377 539
Change in net unrealized appreciation or depreciation of investments 570,819 321,029 (4,874)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 671,756 369,270 (6,343)
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 1,229,935 6,494,864 368,670
Death benefit payments (11,949) (13,946) (1,103)
Policy loan transfers - - -
Transfers to other contracts (97,474) 5,779 (6,935)
Cost of insurance and administration charges (49,357) (44,128) (8,950)
Surrender charges (93,687) (101,362) (41,522)
Increase (decrease) in net assets from policy related transactions (4,937) (5,763) (456)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 972,531 6,335,444 309,704
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1999 1,644,287 6,704,714 303,361
- ---------------------------------------------------------------------------------------------------------------------------
$1,960,477 $6,704,714 $452,739
===========================================================================================================================
MidCap Growth
MidCap Division Division
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $25,463,610 $315,903
Increase (decrease) in net assets
Operations:
Net investment income (loss) 1,177,776 (3,512)
Net realized gains (losses) on investments 142,810 9,001
Change in net unrealized appreciation or depreciation of investments 2,019,372 82,583
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 3,339,958 88,072
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 11,141,276 878,861
Death benefit payments (1,108,369) (10,284)
Policy loan transfers (23,450) -
Transfers to other contracts (579,695) (5,191)
Cost of insurance and administration charges (4,628,585) (195,196)
Surrender charges (2,628,217) (89,869)
Increase (decrease) in net assets from policy related transactions (209,365) (4,250)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total increase (decrease) 1,963,595 574,071
- -------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1999 5,303,553 662,143
- -------------------------------------------------------------------------------------------------------------
$30,767,163 $978,046
=============================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 1999
Money Market Putnam Global Putnam Vista Putnam Voyager
Division Asset Allocation Division Division
Division
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net assets at January 1, 1999 $ 8,335,116 $ 75,231 $123,051 $ 899,548
Increase (decrease) in net assets
Operations:
Net investment income (loss) 313,868 10,746 59,899 135,809
Net realized gains (losses) on investments - 4,668 5,780 16,417
Change in net unrealized appreciation or
depreciation of investments - 23,177 181,556 2,300,449
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 313,868 38,591 247,235 2,452,675
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 40,630,667 441,210 628,024 6,453,995
Contract terminations and surrenders (526,416) (2,330) (6,403) (30,704)
Death benefit payments (31) - - -
Policy loan transfers (280,402) (601) (5,925) (47,124)
Transfers to other contracts (31,813,986) (85,053) (32,861) (354,009)
Cost of insurance and administration charges (1,987,469) (43,615) (55,310) (619,356)
Surrender charges (215,867) (963) (2,646) (12,688)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Increase (decrease) in net assets from policy
related transactions 5,806,496 308,648 524,879 5,390,114
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total increase (decrease) 6,120,364 347,239 772,114 7,842,789
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net assets at December 31, 1999 $14,455,480 $422,470 $895,165 $8,742,337
==========================================================================
See accompanying notes.
SmallCap
Real Estate SmallCap Growth
Division Division Division
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $31,709 $ 250,636 $ 209,695
Increase (decrease) in net assets
Operations:
Net investment income (loss) 3,193 83,640 13,915
Net realized gains (losses) on investments (785) 10,826 30,664
Change in net unrealized appreciation or depreciation of investments (5,017) 145,118 705,827
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (2,609) 239,584 750,406
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 62,476 782,251 1,479,309
Death benefit payments (586) (2,802) (7,272)
Policy loan transfers - - -
Transfers to other contracts (75) 17,498 (95,917)
Cost of insurance and administration charges (6,771) (121,595) (79,325)
Surrender charges (10,279) (65,306) (92,641)
Increase (decrease) in net assets from policy related transactions (242) (1,158) (3,005)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 44,523 608,888 1,201,149
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1999 41,914 848,472 1,951,555
- -----------------------------------------------------------------------------------------------------------------------------
$73,623 $1,099,108 $2,161,250
=============================================================================================================================
SmallCap
Value Utilities
Division Division
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $144,138 $ 45,596
Increase (decrease) in net assets
Operations:
Net investment income (loss) 771 7,994
Net realized gains (losses) on investments 2,968 1,155
Change in net unrealized appreciation or depreciation of investments 78,477 (3,398)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 82,216 5,751
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
Contract terminations and surrenders 496,663 477,154
Death benefit payments (6,635) (842)
Policy loan transfers - -
Transfers to other contracts (518) (9,038)
Cost of insurance and administration charges (36,013) (35,545)
Surrender charges (53,548) (45,444)
Increase (decrease) in net assets from policy related transactions (2,742) (348)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total increase (decrease) 397,207 385,937
- ------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1999 479,423 391,688
- ------------------------------------------------------------------------------------------------------------
$623,561 $437,284
============================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
Aggressive Asset
Growth Allocation Balanced
Combined Division Division Division
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at January 1, 1998 $ 57,094,676 $ 3,915,455 $ 561,781 $5,707,028
Increase (decrease) in net assets
Operations:
Net investment income (loss) 4,736,458 527,171 67,483 513,365
Net realized gains (losses) on investments 1,677,430 11,214 (1,770) 161,523
Change in net unrealized appreciation or
depreciation of investments 1,393,781 947,122 10,057 118,060
---------------------------------------------------------------
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 7,807,669 1,485,507 75,770 792,948
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 120,735,689 11,625,624 1,591,693 7,040,409
Contract terminations and surrenders (9,524,969) (103,562) (4,085) (1,368,274)
Death benefit payments (30,033) (2,799) - (517)
Policy loan transfers (1,569,958) (179,094) (10,991) (244,822)
Transfers to other contracts (42,264,927) (1,075,297) (480,701) (1,287,295)
Cost of insurance and administration charges (10,698,734) (1,364,250) (138,368) (718,018)
Surrender charges (458,138) (57,543) (2,270) (42,270)
---------------------------------------------------------------
---------------------------------------------------------------
Increase in net assets from policy
related transactions 56,188,930 8,843,079 955,278 3,379,213
---------------------------------------------------------------
---------------------------------------------------------------
Total increase 63,996,599 10,328,586 1,031,048 4,172,161
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at December 31, 1998 $121,091,275 $14,244,041 $1,592,829 $9,879,189
===============================================================
See accompanying notes.
Capital Fidelity
Bond Value Contrafund
Division Division Division
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1998 $2,270,847 $11,822,941 $2,089,509
Increase (decrease) in net assets
Operations:
Net investment income (loss) 178,007 1,009,903 110,801
Net realized gains (losses) on investments 33,503 281,655 12,594
Change in net unrealized appreciation or depreciation of investments (19,726) 461,090 1,240,221
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 191,784 1,752,648 1,363,616
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 3,302,871 16,284,235 6,142,338
Contract terminations and surrenders (302,397) (2,480,693) (74,844)
Death benefit payments (1,856) (6,646) (402)
Policy loan transfers (81,085) (170,516) (145,298)
Transfers to other contracts (1,034,053) (2,543,349) (678,221)
Cost of insurance and administration charges (377,536) (1,611,497) (632,111)
Surrender charges (15,330) (75,181) (41,586)
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets from policy related transactions 1,490,614 9,396,353 4,569,876
- -----------------------------------------------------------------------------------------------------------------------------
Total increase 1,682,398 11,149,001 5,933,492
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1998 $3,953,245 $22,971,942 $8,023,001
=============================================================================================================================
Fidelity Equity Fidelity High
Income Division Income
Division
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1998 $1,018,314 $ 329,510
Increase (decrease) in net assets
Operations:
Net investment income (loss) 58,725 43,700
Net realized gains (losses) on investments 5,628 (11,177)
Change in net unrealized appreciation or depreciation of investments 219,300 (81,364)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 283,653 (48,841)
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 4,698,442 1,259,486
Contract terminations and surrenders (17,461) (4,697)
Death benefit payments (3,431) (1,170)
Policy loan transfers (69,698) (53,013)
Transfers to other contracts (572,136) (318,315)
Cost of insurance and administration charges (422,440) (95,559)
Surrender charges (9,702) (2,610)
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from policy related transactions 3,603,574 784,122
- ---------------------------------------------------------------------------------------------------------------------
Total increase 3,887,227 735,281
- ---------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1998 $4,905,541 $1,064,791
=====================================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
Government High
Securities Growth Yield Division International
Division Division Division
----------------------------------------------------------------
----------------------------------------------------------------
Net assets at January 1, 1998 $ 104,221 $ 921,533 $2,092,182 $2,716,270
Increase (decrease) in net assets
Operations:
Net investment income (loss) 97,510 69,385 185,849 308,919
Net realized gains (losses) on investments 1,370 8,386 (1,713) 5,582
Change in net unrealized appreciation or
depreciation of investments (6,358) 437,013 (222,572) (8,068)
----------------------------------------------------------------
----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 92,522 514,784 (38,436) 306,433
Policy related transactions:
Net premium payments, less sales charges and
applicable premium taxes 3,283,931 4,050,726 654,374 6,275,718
Contract terminations and surrenders (1,547) (24,252) (223,218) (52,096)
Death benefit payments - - - (2,388)
Policy loan transfers (9,130) (33,585) (2,756) (93,812)
Transfers to other contracts (93,010) (235,746) (82,650) (623,489)
Cost of insurance and administration charges (109,416) (419,150) (126,865) (697,441)
Surrender charges (859) (13,475) (3,532) (28,946)
----------------------------------------------------------------
----------------------------------------------------------------
Increase in net assets from policy
related transactions 3,069,969 3,324,518 215,353 4,777,546
----------------------------------------------------------------
----------------------------------------------------------------
Total increase 3,162,491 3,839,302 176,917 5,083,979
----------------------------------------------------------------
----------------------------------------------------------------
Net assets at December 31, 1998 $ 3,266,712 $ 4,760,835 $2,269,099 $7,800,249
================================================================
(1) Commenced operations May 1, 1998.
See accompanying notes.
International
SmallCap MicroCap MidCap
Division (1) Division (1) Division
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1998 $ - $ - $19,216,629
Increase (decrease) in net assets
Operations:
Net investment income (loss) 119 294 1,344,070
Net realized gains (losses) on investments (148) (681) 1,170,701
Change in net unrealized appreciation or depreciation of investments 15,012 1,093 (1,927,129)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 14,983 706 587,642
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 334,028 158,559 15,747,739
Contract terminations and surrenders (509) - (4,608,554)
Death benefit payments - - (9,498)
Policy loan transfers - (2,410) (462,004)
Transfers to other contracts (18,167) (2,484) (2,445,385)
Cost of insurance and administration charges (13,862) (4,993) (2,424,710)
Surrender charges (283) - (138,249)
- ------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from policy related transactions 301,207 148,672 5,659,339
- ------------------------------------------------------------------------------------------------------------------------------
Total increase 316,190 149,378 6,246,981
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1998 $316,190 $149,378 $25,463,610
==============================================================================================================================
MidCap Growth Money Market
Division (1) Division
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Net assets at January 1, 1998 $ - $ 4,328,456
Increase (decrease) in net assets
Operations:
Net investment income (loss) (637) 222,792
Net realized gains (losses) on investments 249 -
Change in net unrealized appreciation or depreciation of investments 28,009 -
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 27,621 222,792
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 306,597 36,243,366
Contract terminations and surrenders (24) (258,565)
Death benefit payments - (1,326)
Policy loan transfers - (8,878)
Transfers to other contracts (4,378) (30,709,128)
Cost of insurance and administration charges (13,899) (1,455,420)
Surrender charges (14) (26,181)
- ----------------------------------------------------------------------------------------------------------
Increase in net assets from policy related transactions 288,282 3,783,868
- ----------------------------------------------------------------------------------------------------------
Total increase 315,903 4,006,660
- ----------------------------------------------------------------------------------------------------------
Net assets at December 31, 1998 $315,903 $ 8,335,116
==========================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
Putnam Global Putnam Vista Putnam
Asset Allocation Division (1) Voyager Real Estate
Division (1) Division (1) Division (1)
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at January 1, 1998 $ - $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (120) (174) (1,414) 811
Net realized gains (losses) on investments 140 252 45 (64)
Change in net unrealized appreciation or
depreciation of investments 4,313 20,737 105,601 (320)
---------------------------------------------------------------
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 4,333 20,815 104,232 427
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 76,196 114,287 868,001 33,346
Contract terminations and surrenders - - (93) (23)
Death benefit payments - - - -
Policy loan transfers - - (2,429) -
Transfers to other contracts (1,426) (7,306) (32,669) (406)
Cost of insurance and administration charges (3,872) (4,745) (37,442) (1,622)
Surrender charges - - (52) (13)
---------------------------------------------------------------
---------------------------------------------------------------
Increase in net assets from policy
related transactions 70,898 102,236 795,316 31,282
---------------------------------------------------------------
---------------------------------------------------------------
Total increase 75,231 123,051 899,548 31,709
---------------------------------------------------------------
---------------------------------------------------------------
Net assets at December 31, 1998 $75,231 $123,051 $899,548 $31,709
===============================================================
(1) Commenced operations May 1, 1998.
See accompanying notes.
SmallCap Growth
SmallCap Division (1) SmallCap Value Utilities
Division (1) Division (1) Division (1)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at January 1, 1998 $ - $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (533) (385) 257 560
Net realized gains (losses) on investments (75) (20) (136) 372
Change in net unrealized appreciation
or depreciation of investments 11,967 31,970 5,416 2,337
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 11,359 31,565 5,537 3,269
Policy related transactions:
Net premium payments, less sales charges and
applicable premium taxes
Contract terminations and surrenders 251,162 193,803 145,362 53,396
Death benefit payments (25) (22) (28) -
Policy loan transfers - - - -
Transfers to other contracts (241) - - (196)
Cost of insurance and administration charges (3,354) (6,641) (828) (8,493)
Surrender charges (8,251) (8,998) (5,889) (2,380)
Increase in net assets from policy
related transactions (14) (12) (16) -
239,277 178,130 138,601 42,327
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total increase 250,636 209,695 144,138 45,596
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at December 31, 1998 $250,636 $209,695 $144,138 $45,596
- -----------------------------------------------------------------------------------------------------------------------------
=============================================================================================================================
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements
December 31, 2000
1. Investment and Accounting Policies
Principal Life Insurance Company Variable Life Separate Account (the Separate
Account) is a segregated investment account of Principal Life Insurance Company
(Principal Life) and is registered under the Investment Company Act of 1940 as a
unit investment trust, with no stated limitations on the number of authorized
units. As directed by eligible contractholders, each division of the Separate
Account invests exclusively in shares representing interests in a corresponding
investment option. As of December 31, 2000, contractholder investment options
include the following diversified open-end management investment companies:
Principal Variable Contracts Fund, Inc. (3): Principal Variable Contracts Fund, Inc. (3)
Aggressive Growth Account (continued):
Asset Allocation Account Real Estate Account (1)
Balanced Account Small Cap Account (1)
Bond Account Small Cap Growth Account (1)
Capital Value Account Small Cap Value Account (1)
Government Securities Account Utilities Account (1)
Growth Account Fidelity Variable Insurance Products Fund:
High Yield Account Equity Income Portfolio
International Account High Income Portfolio
International SmallCap Account (1) LargeCap Stock Fidelity Variable Insurance Products Fund II -
Index Account (2) Contrafund Portfolio
MicroCap Account (1) Putnam Variable Trust:
MidCap Account Global Asset Allocation Fund (1)
MidCap Growth Account (1) Vista Fund (1)
Money Market Account Voyager Fund (1)
<FN>
(1) Additional investment option available to contractholders as of May 1, 1998.
(2) Additional investment option available to contractholders as of May 1, 1999.
(3) Organized by Principal Life Insurance Company.
</FN>
Investments are stated at the closing net asset values per share on December 31,
2000. The average cost method is used to determine realized gains and losses on
investments. Dividends are taken into income on an accrual basis as of the
ex-dividend date.
The Separate Account supports the following variable life insurance contracts of
Principal Life: Flex Variable Life Contracts, PrinFlex Life Contracts and
Survivorship Variable Universal Life Insurance Contracts.
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
1. Investment and Accounting Policies (continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of the Separate Account's financial statements and accompanying
notes requires management to make estimates and assumptions that affect the
amounts reported and disclosed. These estimates and assumptions could change in
the future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
2. Expenses and Policy Charges
Principal Life is compensated for the following expenses and charges:
Flex Variable Life Contracts - Mortality and expense risks assumed by
Principal Life are compensated for by a charge equivalent to an annual rate
of .75% of the asset value of each policy. An annual administration charge of
$57 for each policy and a cost of insurance charge, which is based on the
Company's expected future mortality experience, is deducted as compensation
for administrative and insurance expenses, respectively. The mortality and
expense risk, annual administration, and insurance charges amounted to
$214,797, $155,185, and $1,828,386, respectively, in 2000; $214,984,
$174,324, and $1,994,681, respectively, in 1999; and $227,302, $210,067, and
$2,225,739, respectively, in 1998. A sales charge of 5.0% and a tax charge of
2.0% is deducted from each payment made on behalf of each participant. The
sales and tax charge is deducted from the payments by Principal Life prior to
their transfer to the Separate Account. In addition, a surrender charge up to
a maximum of 25% of the minimum first year premium may be imposed upon total
surrender or termination of a policy for insufficient value.
PrinFlex Life Contracts - Mortality and expense risks assumed by Principal
Life are compensated for by a charge equivalent to an annual rate of .90% of
the asset value of each policy. A monthly administration charge of $.40 for
each $1,000 of policy face amount will be deducted from policies in their
first year. After the first policy year, the monthly administration charge is
$6.00 per month. A cost of insurance charge, which is based on the Company's
expected future mortality experience, is also deducted as compensation for
insurance charges. The mortality and expense risk, administration, and
insurance charges amounted to $2,074,990, $2,378,313, and $21,498,565,
respectively, in 2000; $1,148,956, $1,744,117 and $14,262,467, respectively,
in 1999; and $509,501, $995,778 and $7,267,150, respectively, in 1998. A
sales charge of 2.75% of premiums less than or equal to target premium and
.75% of premiums in excess of target is deducted from each payment on behalf
of each participant. A tax charge of 2.2% for state and local taxes and 1.25%
for federal taxes is also deducted from each payment on behalf of each
participant. The sales and tax charge is deducted from contributions by
Principal Life prior to their transfer to the Separate Account.
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
2. Expenses and Policy Charges (continued)
Survivorship Variable Universal Life Insurance Contracts (beginning in 1999)
- Mortality and expenses risk assumed by Principal Life are compensated for
by a charge equivalent to an annual rate of .80% of the asset value of each
policy. A monthly administration charge of $8.00. An additional monthly
administration charge in the first ten years (and ten years after an increase
in the face amount) of $.07 per $1,000 of face amount. The charge of $.07 is
increased by $.005 per $1,000 for each insurer classified as smoker. A cost
of insurance charge, which is based on the Company's expected future
mortality experience, is also deducted as compensation for insurance charges.
The mortality expense risk, administration and insurance charges amounted to
$58,307, $357,210 and $313,385, respectively, in 2000; and $3,970, $30,083
and $26,149, respectively, in 1999. A sales charge of 5.0% of premiums less
than or equal to target premium and 2.0% of premiums in excess of target is
deducted from each payment on behalf of each participant. A tax charge of
2.2% for state and local taxes and 1.25% for federal taxes is deducted from
each payment on behalf of each participant. The sale and tax charge is
deducted from contributions by Principal Life prior to their transfer to the
Separate Account.
3. Federal Income Taxes
The operations of the Separate Account are a part of the operations of Principal
Life. Under current practice, no federal income taxes are allocated by Principal
Life to the operations of the Separate Account.
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments
The aggregate units and cost of purchases and proceeds from sales of investments
were as follows:
Year ended December 31, 2000
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
------------- ---------------- ---------------- ------------------
Aggressive Growth Division:
PrinFlex Life 1,361,577 $ 29,544,860 501,754 $ 10,504,335
Survivorship Variable Universal Life 112,002 1,432,981 7,441 91,061
------------- ---------------- ---------------- ------------------
1,473,579 30,977,841 509,195 10,595,396
Asset Allocation Division:
PrinFlex Life 191,654 3,457,210 58,310 903,442
Survivorship Variable Universal Life 29,144 373,560 1,695 19,473
------------- ---------------- ---------------- ------------------
220,798 3,830,770 60,005 922,915
Balanced Division:
Flex Variable Life 22,620 677,443 29,829 923,959
PrinFlex Life 264,429 3,484,623 281,698 3,711,150
Survivorship Variable Universal Life 15,115 151,031 1,252 12,484
------------- ---------------- ---------------- ------------------
302,164 4,313,097 312,779 4,647,593
Bond Division:
Flex Variable Life 31,163 724,247 43,557 1,023,319
PrinFlex Life 327,188 3,830,313 160,197 1,867,395
Survivorship Variable Universal Life 13,731 141,317 1,432 14,814
------------- ---------------- ---------------- ------------------
372,082 4,695,877 205,186 2,905,528
Capital Value Division:
Flex Variable Life 41,792 1,619,557 65,294 2,329,954
PrinFlex Life 772,832 10,529,652 752,345 9,893,072
Survivorship Variable Universal Life 14,484 131,736 3,713 32,796
------------- ---------------- ---------------- ------------------
829,108 12,280,945 821,352 12,255,822
Fidelity Contrafund Division:
PrinFlex Life 1,144,457 25,062,489 374,650 7,177,695
Survivorship Variable Universal Life 111,833 1,295,489 10,478 115,605
------------- ---------------- ---------------- ------------------
1,256,290 26,357,978 385,128 7,293,300
Fidelity Equity Income Division:
PrinFlex Life 458,716 7,372,731 269,431 3,860,824
Survivorship Variable Universal Life 46,772 468,092 6,219 60,267
------------- ---------------- ---------------- ------------------
505,488 7,840,823 275,650 3,921,091
Fidelity High Income Division:
PrinFlex Life 124,178 1,479,968 63,941 709,140
Survivorship Variable Universal Life 7,470 68,333 422 3,693
------------- ---------------- ---------------- ------------------
------------- ---------------- ---------------- ------------------
131,648 1,548,301 64,363 712,833
Government Securities Division:
PrinFlex Life 148,727 1,835,007 160,947 1,920,835
Survivorship Variable Universal Life 9,169 97,850 1,998 21,442
------------- ---------------- ---------------- ------------------
157,896 1,932,857 162,945 1,942,277
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments (continued)
Year ended December 31, 2000
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
-------------- --------------- ---------------- ------------------
Growth Division:
PrinFlex Life 523,375 $ 11,902,192 228,808 $ 3,950,876
Survivorship Variable Universal Life 60,111 764,544 3,602 39,270
-------------- --------------- ---------------- ------------------
583,486 12,666,736 232,410 3,990,146
High Yield Division:
Flex Variable Life 14,246 461,032 13,471 296,636
International Division:
PrinFlex Life 656,461 10,449,899 304,424 4,500,740
Survivorship Variable Universal Life 37,625 441,058 4,291 46,939
-------------- --------------- ---------------- ------------------
694,086 10,890,957 308,715 4,547,679
International SmallCap Division:
PrinFlex Life 562,111 10,285,823 262,440 4,526,958
Survivorship Variable Universal Life 41,607 648,394 1,523 21,783
-------------- --------------- ---------------- ------------------
603,718 10,934,217 263,963 4,548,741
LargeCap Stock Index Division:
PrinFlex Life 665,489 7,155,049 109,385 1,169,012
Survivorship Variable Universal Life 75,861 815,290 8,957 95,411
-------------- --------------- ---------------- ------------------
741,350 7,970,339 118,342 1,264,423
MicroCap Division:
PrinFlex Life 126,312 1,138,965 85,693 771,450
Survivorship Variable Universal Life 39,160 423,776 698 7,126
-------------- --------------- ---------------- ------------------
165,472 1,562,741 86,391 778,576
MidCap Division:
Flex Variable Life 70,463 5,935,807 70,319 3,474,506
PrinFlex Life 547,143 12,178,928 405,940 6,007,625
Survivorship Variable Universal Life 7,081 93,418 426 5,067
-------------- --------------- ---------------- ------------------
624,687 18,208,153 476,685 9,487,198
MidCap Growth Division:
PrinFlex Life 150,366 1,949,202 42,392 487,256
Survivorship Variable Universal Life 7,683 99,040 423 5,135
-------------- --------------- ---------------- ------------------
158,049 2,048,242 42,815 492,391
Money Market Division:
Flex Variable Life 38,771 700,970 48,920 850,363
PrinFlex Life 5,179,115 62,297,867 4,831,329 57,319,829
Survivorship Variable Universal Life 1,028,494 10,903,620 1,133,955 11,932,129
-------------- --------------- ---------------- ------------------
6,246,380 73,902,457 6,014,204 70,102,321
Putnam Global Asset Allocation Division:
PrinFlex Life 66,847 802,114 22,152 248,852
Survivorship Variable Universal Life 7,668 88,592 2,529 27,137
-------------- --------------- ---------------- ------------------
74,515 890,706 24,681 275,989
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments (continued)
Year ended December 31, 2000
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
-------------- --------------- ---------------- ------------------
Putnam Vista Division:
PrinFlex Life 316,101 $ 5,596,158 44,910 $ 788,098
Survivorship Variable Universal Life 20,759 322,587 4,233 69,463
-------------- --------------- ---------------- ------------------
336,860 5,918,745 49,143 857,561
Putnam Voyager Division:
PrinFlex Life 969,010 17,883,580 243,104 4,095,212
Survivorship Variable Universal Life 124,973 1,816,351 8,740 119,721
-------------- --------------- ---------------- ------------------
1,093,983 19,699,931 251,844 4,214,933
Real Estate Division:
PrinFlex Life 80,043 900,907 25,478 276,672
Survivorship Variable Universal Life 25,948 311,178 4,779 55,479
-------------- --------------- ---------------- ------------------
-------------- --------------- ---------------- ------------------
105,991 1,212,085 30,257 332,151
SmallCap Division:
PrinFlex Life 157,023 2,129,794 67,657 790,384
Survivorship Variable Universal Life 8,321 114,731 500 5,956
-------------- --------------- ---------------- ------------------
165,344 2,244,525 68,157 796,340
SmallCap Growth Division:
PrinFlex Life 418,484 9,305,031 78,202 1,631,110
Survivorship Variable Universal Life 54,220 934,180 4,910 82,686
-------------- --------------- ---------------- ------------------
472,704 10,239,211 83,112 1,713,796
SmallCap Value Division:
PrinFlex Life 197,188 2,393,515 125,832 1,460,089
Survivorship Variable Universal Life 5,708 78,266 1,951 24,256
-------------- --------------- ---------------- ------------------
202,896 2,471,781 127,783 1,484,345
Utilities Division:
PrinFlex Life 100,607 1,333,121 46,955 603,043
Survivorship Variable Universal Life 11,059 121,182 1,210 13,343
-------------- --------------- ---------------- ------------------
111,666 1,454,303 48,165 616,386
-------------- --------------- ---------------- ------------------
17,644,486 $276,554,650 11,036,741 $150,996,367
============== =============== ================ ==================
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments (continued)
Year ended December 31, 1999
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
------------- ---------------- ---------------- ------------------
Aggressive Growth Division:
PrinFlex Life 970,302 $ 18,208,064 331,686 $ 5,543,887
Survivorship Variable Universal Life 7,867 94,528 732 8,432
------------- ---------------- ---------------- ------------------
978,169 18,302,592 332,418 5,552,319
Asset Allocation Division:
PrinFlex Life 126,145 1,964,356 55,304 741,949
Survivorship Variable Universal Life 15,103 164,337 203 2,120
------------- ---------------- ---------------- ------------------
141,248 2,128,693 55,507 744,069
Balanced Division:
Flex Variable Life 32,343 1,253,440 31,633 977,440
PrinFlex Life 385,145 5,654,313 225,867 2,977,675
Survivorship Variable Universal Life 8,197 85,151 155 1,532
------------- ---------------- ---------------- ------------------
425,685 6,992,904 257,655 3,956,647
Bond Division:
Flex Variable Life 21,722 638,489 24,329 584,331
PrinFlex Life 385,603 4,786,951 139,681 1,628,875
Survivorship Variable Universal Life 4,133 43,317 72 726
------------- ---------------- ---------------- ------------------
411,458 5,468,757 164,082 2,213,932
Capital Value Division:
Flex Variable Life 58,379 3,417,091 44,706 1,759,412
PrinFlex Life 865,446 14,950,191 424,784 6,209,297
Survivorship Variable Universal Life 5,115 50,729 822 7,735
------------- ---------------- ---------------- ------------------
928,940 18,418,011 470,312 7,976,444
Fidelity Contrafund Division:
PrinFlex Life 784,899 13,802,563 194,124 3,317,646
Survivorship Variable Universal Life 14,058 141,995 340 3,542
------------- ---------------- ---------------- ------------------
798,957 13,944,558 194,464 3,321,188
Fidelity Equity Income Division:
PrinFlex Life 442,641 6,654,870 161,414 2,328,152
Survivorship Variable Universal Life 6,673 63,501 65 624
------------- ---------------- ---------------- ------------------
449,314 6,718,371 161,479 2,328,776
Fidelity High Income Division:
PrinFlex Life 86,113 1,116,094 51,793 611,648
Government Securities Division:
PrinFlex Life 194,406 2,480,309 209,054 2,462,106
Survivorship Variable Universal Life 6,834 71,341 3,590 36,630
------------- ---------------- ---------------- ------------------
201,240 2,551,650 212,644 2,498,736
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments (continued)
Year ended December 31, 1999
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
------------- ---------------- ---------------- ------------------
Growth Division:
PrinFlex Life 454,302 $ 7,156,190 154,162 $ 2,398,898
Survivorship Variable Universal Life 4,616 48,392 84 860
------------- ---------------- ---------------- ------------------
458,918 7,204,582 154,246 2,399,758
High Yield Division:
Flex Variable Life 20,298 591,968 48,184 1,053,406
International Division:
PrinFlex Life 492,014 7,894,576 272,765 3,522,604
Survivorship Variable Universal Life 3,556 41,864 36 386
------------- ---------------- ---------------- ------------------
495,570 7,936,440 272,801 3,522,990
International SmallCap Division:
PrinFlex Life 95,274 1,287,791 19,712 263,257
Survivorship Variable Universal Life 1,484 19,838 17 217
------------- ---------------- ---------------- ------------------
96,758 1,307,629 19,729 263,474
LargeCap Stock Index Division:
PrinFlex Life 621,329 6,531,558 17,000 174,277
Survivorship Variable Universal Life 2,600 26,786 72 759
-------------- --------------- ---------------- ------------------
623,929 6,558,344 17,072 175,036
MicroCap Division:
PrinFlex Life 42,361 346,589 7,556 61,540
Survivorship Variable Universal Life 2,583 22,694 5 47
------------- ---------------- ---------------- ------------------
44,944 369,283 7,561 61,587
MidCap Division:
Flex Variable Life 69,891 3,419,307 78,806 3,282,474
PrinFlex Life 669,400 9,125,936 492,907 6,123,791
Survivorship Variable Universal Life 232 2,437 4 44
------------- ---------------- ---------------- ------------------
739,523 12,547,680 571,717 9,406,309
MidCap Growth Division:
PrinFlex Life 90,323 878,244 32,058 309,719
Survivorship Variable Universal Life 236 2,184 15 150
------------- ---------------- ---------------- ------------------
90,559 880,428 32,073 309,869
Money Market Division:
Flex Variable Life 22,657 399,399 8,313 140,760
PrinFlex Life 3,259,754 37,186,165 2,946,933 33,194,646
Survivorship Variable Universal Life 339,308 3,452,703 155,990 1,582,499
------------- ---------------- ---------------- ------------------
3,621,719 41,038,267 3,111,236 34,917,905
Putnam Global Asset Allocation Division:
PrinFlex Life 37,942 413,030 12,194 134,797
Survivorship Variable Universal Life 3,901 41,312 14 151
------------- ---------------- ---------------- ------------------
41,843 454,342 12,208 134,948
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments (continued)
Year ended December 31, 1999
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
------------- ---------------- ---------------- ------------------
Putnam Vista Division:
PrinFlex Life 52,210 $ 681,239 8,751 $ 106,029
Survivorship Variable Universal Life 782 9,644 6 76
------------- ---------------- ---------------- ------------------
52,992 690,883 8,757 106,105
Putnam Voyager Division:
PrinFlex Life 505,025 6,504,503 86,311 1,091,791
Survivorship Variable Universal Life 10,457 114,740 124 1,528
------------- ---------------- ---------------- ------------------
515,482 6,619,243 86,435 1,093,319
Real Estate Division:
PrinFlex Life 6,892 65,261 2,042 18,329
SmallCap Division:
PrinFlex Life 82,373 858,971 19,001 178,081
Survivorship Variable Universal Life 997 11,754 11 117
------------- ---------------- ---------------- ------------------
83,370 870,725 19,012 178,198
SmallCap Growth Division:
PrinFlex Life 105,937 1,480,349 19,878 283,342
Survivorship Variable Universal Life 1,414 18,203 10 146
------------- ---------------- ---------------- ------------------
107,351 1,498,552 19,888 283,488
SmallCap Value Division:
PrinFlex Life 50,737 461,462 11,295 102,194
Survivorship Variable Universal Life 3,695 38,793 8 83
------------- ---------------- ---------------- ------------------
54,432 500,255 11,303 102,277
Utilities Division:
PrinFlex Life 39,617 471,468 7,891 93,083
Survivorship Variable Universal Life 1,571 15,596 5 50
------------- ---------------- ---------------- ------------------
41,188 487,064 7,896 93,133
------------- ---------------- ---------------- ------------------
11,516,892 $165,262,576 6,302,514 $83,323,890
============= ================ ================ ==================
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments (continued)
Year ended December 31, 1998
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
------------- ---------------- ---------------- ------------------
Aggressive Growth Division:
PrinFlex Life 861,317 $ 12,227,704 211,314 $ 2,857,454
Asset Allocation Division:
PrinFlex Life 131,206 1,668,350 53,260 645,589
Balanced Division:
Flex Variable Life 36,816 1,264,339 71,643 2,030,576
PrinFlex Life 490,842 6,352,561 138,126 1,693,746
------------- ---------------- ---------------- ------------------
527,658 7,616,900 209,769 3,724,322
Bond Division:
Flex Variable Life 55,198 1,406,724 53,470 1,271,250
PrinFlex Life 174,764 2,098,649 49,437 565,502
------------- ---------------- ---------------- ------------------
229,962 3,505,373 102,907 1,836,752
Capital Value Division:
Flex Variable Life 69,516 2,942,517 96,955 3,533,172
PrinFlex Life 1,007,229 14,488,359 257,693 3,491,448
------------- ---------------- ---------------- ------------------
1,076,745 17,430,876 354,648 7,024,620
Fidelity Contrafund Division:
PrinFlex Life 457,546 6,291,010 120,504 1,610,333
Fidelity Equity Income Division:
PrinFlex Life 361,409 4,781,646 86,079 1,119,347
Fidelity High Income Division:
PrinFlex Life 109,968 1,310,358 41,948 482,536
Government Securities Division:
PrinFlex Life 286,524 3,395,601 19,932 228,122
Growth Division:
PrinFlex Life 303,006 4,142,276 55,628 748,373
High Yield Division:
Flex Variable Life 29,675 857,141 20,132 455,939
International Division:
PrinFlex Life 530,953 6,632,041 131,554 1,545,576
International SmallCap Division:
PrinFlex Life 38,901 334,880 3,976 33,554
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investments (continued)
Year ended December 31, 1998
------------------------------------------------------------------
Units Amount Units Redeemed Amount Redeemed
Purchased Purchased
------------- ---------------- ---------------- ------------------
MicroCap Division:
PrinFlex Life 19,585 $ 159,179 1,311 $ 10,213
MidCap Division:
Flex Variable Life 103,942 4,846,657 183,301 7,449,571
PrinFlex Life 943,646 12,430,779 229,365 2,824,456
------------- ---------------- ---------------- ------------------
1,047,588 17,277,436 412,666 10,274,027
Mid-Cap Growth Division:
PrinFlex Life 34,735 306,597 2,195 18,952
Money Market Division:
Flex Variable Life 39,955 657,300 49,712 795,271
PrinFlex Life 3,322,020 35,876,706 2,964,012 31,732,075
------------- ---------------- ---------------- ------------------
3,361,975 36,534,006 3,013,724 32,527,346
Putnam Global Asset Allocation Division:
PrinFlex Life 7,867 76,195 562 5,417
Putnam Vista Division;
PrinFlex Life 13,042 114,287 1,330 12,225
Putnam Voyager Division:
PrinFlex Life 90,896 868,001 7,931 74,099
Real Estate Division:
PrinFlex Life 3,623 34,212 233 2,119
SmallCap Division:
PrinFlex Life 33,031 251,186 1,679 12,442
SmallCap Growth Division:
PrinFlex Life 22,252 193,803 1,822 16,058
SmallCap Value Division:
PrinFlex Life 17,813 145,873 878 7,015
Utilities Division:
PrinFlex Life 4,976 54,019 1,032 11,132
------------- ---------------- ---------------- ------------------
9,602,253 $126,208,950 4,857,014 $65,283,562
============= ================ ================ ==================
Principal Life Insurance Company
Consolidated Statements of Financial Position
(Unaudited)
September 30, December 31,
2001 2000
---------------------------------------------
($ In Millions)
Assets
Fixed maturities, available-for-sale $29,502.0 $26,142.1
Equity securities, available-for sale 710.6 710.3
Mortgage loans 11,243.9 11,325.8
Real estate 1,140.2 1,391.7
Policy loans 826.0 803.6
Other investments 652.3 532.8
-------------------------------------
Total investments 44,075.0 40,906.3
Cash and cash equivalents 600.3 1,842.2
Accrued investment income 583.3 530.4
Premiums due and other receivables 507.0 401.8
Deferred policy acquisition costs 1,245.5 1,333.3
Property and equipment 472.0 471.2
Goodwill and other intangibles 71.2 94.1
Mortgage loan servicing rights 1,481.8 1,084.4
Separate account assets 29,309.9 33,180.4
Other assets 870.5 558.8
-------------------------------------
Total assets $79,216.5 $80,402.9
=====================================
Liabilities
Contractholder funds $24,987.8 $24,300.2
Future policy benefits and claims 12,994.4 12,579.6
Other policyholder funds 597.0 597.4
Short-term debt 1,568.9 1,339.9
Long-term debt 719.2 672.3
Income taxes currently payable - 124.5
Deferred income taxes 806.9 399.0
Separate account liabilities 29,309.9 33,180.4
Other liabilities 2,902.4 1,909.4
-------------------------------------
Total liabilities 73,886.5 75,102.7
Stockholder's equity
Common stock, par value $1 per share -
authorized 5,000,000 shares, issued and
outstanding 2,500,000 shares (wholly owned
indirectly by Principal Mutual Holding Company) 2.5 2.5
Additional paid-in capital 21.0 21.0
Retained earnings 4,884.3 5,188.6
Accumulated other comprehensive income (loss):
Net unrealized gains on available-for-sale
securities and derivative instruments 429.8 121.1
Net foreign currency translation adjustment (7.6) (33.0)
-------------------------------------
Total stockholder's equity 5,330.0 5,300.2
-------------------------------------
Total liabilities and stockholder's equity $79,216.5 $80,402.9
=====================================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Operations
(Unaudited)
For the nine
months ended
September 30,
2001 2000
------------------------------------
(In Millions)
Revenues
Premiums and other considerations $2,934.5 $2,869.0
Fees and other revenues 1,073.5 915.0
Net investment income 2,393.8 2,303.2
Net realized capital gains (losses) (249.8) 90.8
------------------------------
Total revenues 6,152.0 6,178.0
Expenses
Benefits, claims, and settlement expenses 3,915.9 3,782.6
Dividends to policyholders 241.2 231.6
Operating expenses 1,536.9 1,532.6
------------------------------
Total expenses 5,694.0 5,546.8
------------------------------
Income before income taxes 458.0 631.2
Income taxes 97.1 178.5
------------------------------
Income before change in accounting principle 360.9 452.7
Cumulative effect of accounting change,
net of related income taxes (10.7) -
------------------------------
Net income $350.2 $452.7
==============================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity
(Unaudited)
Net Unrealized
Gains (Losses) on
Available-for-Sale
Additional Securities and
Common Paid-In Retained Derivative
Stock Capital Earnings Instruments
---------------------------------------------------------------------------
(In Millions)
For the Nine Months Ended:
Balances at January 1, 2000 $2.5 $ - $5,110.6 ($102.1)
Reclassifciation of retained earnings to
additional paid-in capital 21.0 (21.0)
Dividend to parent holding company -- -- (542.8) --
Comprehensive income:
Net income -- -- 452.7 --
Net change in unrealized gains and losses
on fixed maturities, available-for-sale -- -- -- 342.9
Net change in unrealized gains and losses
on equity securities, available-for-sale,
including seed money in separate accounts -- -- -- (183.2)
Adjustments for assumed changes in
amortization pattern:
Deferred policy acquisition costs -- -- -- (58.6)
Unearned revenue reserves -- -- -- 9.2
Net change in unrealized gains and losses
on derivative instruments -- -- -- 0.9
Provision for deferred income taxes -- -- -- (40.6)
Change in net foreign currency translation
adjustment -- -- -- --
Comprehensive income
-----------------------------------------
---------------------------------------------------------------------------
Balances at September 30, 2000 $2.5 $21.0 $4,999.5 ($31.5)
===========================================================================
For the Nine Months Ended:
Balances at January 1, 2001 $2.5 $21.0 $5,188.6 $121.1
Dividend to parent holding company -- -- (654.5) --
Comprehensive income:
Net income -- -- 350.2 --
Net change in unrealized gains and losses
on fixed maturities, available-for-sale -- -- -- 731.4
Net change in unrealized gains and losses
on equity securities, available-for-sale,
including seed money in separate accounts -- -- -- (38.0)
Adjustments for assumed changes in
amortization pattern:
Deferred policy acquisition costs -- -- -- (99.8)
Unearned revenue reserves -- -- -- 6.2
Net change in unrealized gains and losses
on derivative instruments -- -- -- (100.9)
Net change in unrealized gains and losses
on policyholder dividend obligation -- -- -- (8.8)
Provision for deferred income taxes -- -- -- (178.3)
Change in net foreign currency translation
adjustment -- -- -- --
Cumulative effect of accounting change, net -- -- -- (3.1)
of related income taxes
Comprehensive income
-----------------------------------------
---------------------------------------------------------------------------
Balances at September 30, 2001 $2.5 $21.0 $4,884.3 $429.8
===========================================================================
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity
(Unaudited)
Net Foreign
Currency Total
Translation Stockholder's
Adjustment Equity
-------------------------------
For the Nine Months Ended:
Balances at January 1, 2000 ($60.0) $4,951.0
Reclassifciation of retained earnings to
additional paid-in capital --
Dividend to parent holding company -- (542.8)
Comprehensive income:
Net income -- 452.7
Net change in unrealized gains and losses
on fixed maturities, available-for-sale -- 342.9
Net change in unrealized gains and losses
on equity securities, available-for-sale,
including seed money in separate accounts -- (183.2)
Adjustments for assumed changes in
amortization pattern:
Deferred policy acquisition costs -- (58.6)
Unearned revenue reserves -- 9.2
Net change in unrealized gains and losses
on derivative instruments -- 0.9
Provision for deferred income taxes -- (40.6)
Change in net foreign currency translation
adjustment 27.1 27.1
-----------
Comprehensive income 550.4
---------------------------
---------------------------
Balances at September 30, 2000 ($32.9) $4,958.6
===========================
For the Nine Months Ended:
Balances at January 1, 2001 ($33.0) $5,300.2
Dividend to parent holding company -- (654.5)
Comprehensive income:
Net income -- 350.2
Net change in unrealized gains and losses
on fixed maturities, available-for-sale -- 731.4
Net change in unrealized gains and losses
on equity securities, available-for-sale,
including seed money in separate accounts -- (38.0)
Adjustments for assumed changes in
amortization pattern:
Deferred policy acquisition costs -- (99.8)
Unearned revenue reserves -- 6.2
Net change in unrealized gains and losses
on derivative instruments -- (100.9)
Net change in unrealized gains and losses
on policyholder dividend obligation -- (8.8)
Provision for deferred income taxes -- (178.3)
Change in net foreign currency translation
adjustment 36.5 36.5
Cumulative effect of accounting change, net (11.1) (14.2)
of related income taxes
-----------
Comprehensive income 684.3
---------------------------
---------------------------
Balances at September 30, 2001 ($7.6) $5,330.0
===========================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended
September 30,
2001 2000
(In Millions)
Operating activities:
Net Income $ 350.2 $ 452.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change, net of related income taxes 10.7 -
Amortization of deferred policy acquisition costs 128.9 170.2
Additions to deferred policy acquisition costs (181.9) (203.0)
Accrued investment income (56.6) (21.8)
Premiums due and other receivables (101.5) (67.2)
Contractholder and policyholder liabilities and dividends 1,500.1 752.7
Current and deferred income taxes 35.5 107.1
Net realized capital (gains) losses 249.8 (90.8)
Depreciation and amortization expense 64.5 70.3
Amortization and impairment/recovery of mortgage servicing rights 232.8 118.1
Other 401.2 123.0
Net cash provided by operating activities 2,633.7 1,411.3
Investing activities:
Available-for-sale securities:
Purchases (8,661.7) (8,733.2)
Sales 4,010.3 5,650.1
Maturities 1,676.3 2,045.3
Mortgage loans acquired or originated (27,912.1) (7,309.1)
Mortgage loans sold or repaid 28,003.9 7,997.9
Purchase of mortgage servicing rights (651.0) (89.4)
Proceeds from sale of mortgage servicing rights 29.6 -
Real estate acquired (228.9) (250.9)
Real estate sold 535.9 422.1
Net change in property and equipment (55.9) (39.2)
Net proceeds from sale of subsidiaries (14.8) -
Purchases of interests in subsidiaries, net of cash acquired (4.2) (27.4)
Net change in other investments (255.9) 35.8
Net cash used in investing activities (3,528.5) (298.0)
Financing activities:
Issuance of debt 157.0 78.8
Principal repayments of debt (110.2) (58.3)
Proceeds of short-term borrowings 228.9 1,434.6
Repayment of short-term borrowings - (320.4)
Dividend paid to parent holding company (508.4) (345.8)
Investment contract deposits 4,192.8 2,832.3
Investment contract withdrawals (4,307.2) (3,726.4)
Net cash used in financing activities (347.1) (105.2)
Net increase (decrease) in cash and cash equivalents (1,241.9) 1,008.1
Cash and cash equivalents at beginning of period 1,842.2 668.9
Cash and cash equivalents at end of period $ 600.3 $ 1,677.0
See accompanying notes.
Principal Life Insurance Company
Notes to Consolidated Financial Statements
September 30, 2001
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
Description of Business
Principal Life Insurance Company and its consolidated subsidiaries ("the
Company") is a diversified financial services organization engaged in the
marketing and management of retirement savings, investment and insurance
products and services in the United States and residential mortgage loan
origination and servicing in the United States.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company and
its majority-owned subsidiaries have been prepared in conformity with accounting
principles generally accepted in the United States ("GAAP"). Less than
majority-owned entities in which the Company has at least a 20% interest are
reported on the equity basis in the consolidated statements of financial
position as other investments. A temporarily controlled subsidiary is carried at
the lower of cost or fair value, and is included in other investments. All
significant intercompany accounts and transactions have been eliminated.
Reclassifications have been made to the December 31, 2000, financial statements
to conform to the September 30, 2001, presentation.
Accounting Changes
On July 20, 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), which dramatically
change the accounting for business combinations, goodwill and other intangible
assets. These Statements were effective July 1, 2001, for any business
combinations entered into subsequent to June 30, 2001. SFAS 142, which will
become effective January 1, 2002, for the Company's business combinations
entered into prior to June 30, 2001, adopts a nonamortization, impairment-only
model for the Company's goodwill and indefinite-lived intangible assets. This
includes a more stringent impairment test methodology (fair value based on
discounted cash flows) for measuring and recognizing impairment losses.
The Company continues to study the impact the new Statements will have on its
consolidated financial statements. To determine fair value at January 1, 2002
(date of adoption), the new impairment methodology requires consideration of
many variables that are difficult to predict at this time. If it is determined
that economic conditions and the business environment at adoption of the new
standard warrant recognition of intangible asset impairment, such impairment
will be treated as a cumulative effect of a change in accounting principle.
The Company's policy, under existing GAAP guidance, for measuring impairment of
goodwill and other intangibles is based on undiscounted cash flow and has not
resulted in an indicated impairment.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). In June 1999, Statement No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 was issued deferring the effective
date of SFAS 133 by one year. In June 2000, the FASB issued Statement No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities an
amendment of FASB Statement No. 133, which amended the accounting and reporting
standards of SFAS 133 for certain derivative instruments and certain hedging
activities.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
September 30, 2001
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
As amended, SFAS 133 requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as one of the following:
a) a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment;
b) a hedge of the exposure to variable cash flows of a forecasted transaction;
or
c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction.
The Company's accounting for the ongoing changes in fair value of a derivative
depends on the intended use of the derivative and the designation as described
above and is determined when the derivative contract is entered into.
For derivatives hedging the exposure to changes in fair value of a recognized
asset or liability, the change in fair value of the derivative is recognized in
earnings in the period of change together with the offsetting change in fair
value on the hedged item attributable to the risk being hedged. The effect of
such accounting is to reflect in earnings the extent to which the hedge is not
effective in achieving offsetting changes in fair value.
For derivatives hedging the exposure to variable cash flows, the effective
portion of the derivative's change in fair value is initially deferred and
reported as a component of other comprehensive income and subsequently
reclassified into earnings when the forecasted transaction occurs and is
recognized in earnings. The ineffective portion of the change in fair value is
reported in earnings in the period of change.
The Company currently does not hedge the foreign currency exposure of a net
investment in a foreign operation.
For derivatives hedging the foreign currency exposure of an unrecognized firm
commitment or an available-for-sale security, the change in fair value of the
derivative is recognized in earnings in the period of change together with the
offsetting change in fair value on the hedged item attributable to the risk
being hedged. The effect of such accounting is to reflect in earnings the extent
to which the hedge is not effective in achieving offsetting changes in fair
value.
For derivatives hedging the foreign currency exposure of a
foreign-currency-denominated forecasted transaction, the change in fair value is
initially deferred and reported as a component of other comprehensive income and
subsequently reclassified into earnings when the forecasted transaction occurs
and is recognized in earnings. The ineffective portion of the change in fair
value is reported in earnings in the period of change.
For derivatives not designated as a hedging instrument, the change in fair value
is recognized in earnings in the period of change.
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
At January 1, 2001, the Company's consolidated financial statements were
adjusted to record a cumulative effect of adopting SFAS 133, as follows (in
millions):
Accumulated other
comprehensive
Net income income
------------ --------------------
Adjustment to fair value of derivative contracts (1) $(16.4) $(15.8)
Income tax impact 5.7 1.6
------------ --------------------
Total.................................................... $ (10.7) $(14.2)
============ ====================
Amount presented is net of adjustment to hedged item.
Derivatives and Hedging Instruments
Overview
The Company's derivatives are generally held for purposes other than trading and
are primarily used to hedge or reduce exposure to interest rate and foreign
currency risks associated with assets held or expected to be purchased or sold,
and liabilities incurred or expected to be incurred. Additionally, derivatives
are used to change the characteristics of the Company's asset/liability mix
consistent with the Company's risk management activities.
The Company's risk of loss is typically limited to the fair value of its
derivative instruments and not to the notional or contractual amounts of these
derivatives. Risk arises from changes in the fair value of the underlying
instruments. The Company is also exposed to credit losses in the event of
nonperformance of the counterparties. The Company's current credit exposure is
limited to the value of derivatives that have become favorable to the Company.
This credit risk is minimized by purchasing such agreements from financial
institutions with high credit ratings and by establishing and monitoring
exposure limits.
The net interest effect of interest rate and currency swap transactions is
recorded as an adjustment to net investment income or interest expense, as
appropriate, over the periods covered by the agreements. The cost of derivative
instruments related to residential mortgage loan servicing rights is included in
the basis of the underlying assets which are marked-to-market and reported in
fees and other revenue in the consolidated statement of operations. The cost of
other derivative contracts is amortized over the life of the contracts and
classified with the results of the underlying hedged item.
Hedge accounting is used for derivatives that are specifically designated in
advance as hedges and that reduce the Company's exposure to an indicated risk by
having a high correlation between changes in the value of the derivatives and
the item being hedged at both the inception of the hedge and throughout the
hedge period. Should such criteria not be met or if the hedged items are sold,
terminated or matured, the changes in value of the derivatives are included in
net income.
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
The fair value of derivative instruments, identified as hedges and classified as
assets at September 30, 2001, was $310.1 million. Of this amount, the fair value
of derivatives related to investment hedges was $82.3 million and was reported
with other invested assets on the consolidated statement of financial position.
The fair value of derivatives related to residential mortgage loan servicing
rights and residential mortgage loans was $227.8 million and is reported with
other assets on the consolidated statement of financial position. The fair value
of derivative instruments classified as liabilities at September 30, 2001, was
$542.7 million and was reported with other liabilities on the consolidated
statement of financial position.
Fair Value Hedges
The Company uses fixed-to-floating rate interest rate swaps to more closely
align the interest rate characteristics of certain assets and liabilities. In
general, these swaps are used in asset and liability management to modify
duration.
The Company also enters into currency exchange swap agreements to convert
certain foreign denominated assets and liabilities into U.S. dollar
floating-rate denominated instruments to eliminate the exposure to future
currency volatility on those items.
For the nine months ended September 30, 2001, the Company recognized a pre-tax
net gain of $40.6 million related to the ineffective portion of its fair value
hedges. This net gain includes a net gain of $100.0 million related to the
ineffective portion of its fair value residential mortgage loan servicing hedges
and a net loss of $47.1 million related to the change in the value of the
servicing hedges that was excluded from the assessment of hedge effectiveness.
The net gain on residential mortgage loan servicing hedges was offset by
amortization of residential mortgage loan servicing rights. Both the net gain
and amortization of mortgage loan servicing rights were reported with other
expenses on the consolidated statement of operations. The net gain also includes
a net loss of $12.3 million related to investment hedges and was reported with
net realized capital gains and losses on the consolidated statement of
operations.
Cash Flow Hedges
The company also utilizes floating-to-fixed rate interest rate swaps to match
cash flows.
The Company enters into currency exchange swap agreements to convert both
principal and interest payments of certain foreign denominated assets and
liabilities into U.S. dollar denominated fixed-rate instruments to eliminate the
exposure to future currency volatility on those items.
For the nine months ended September 30, 2001, the Company recognized a $65.7
million after-tax decrease in value related to cash flow hedges in accumulated
other comprehensive income. During this time period, none of the Company's cash
flow hedges have been discontinued because it was probable that the original
forecasted transaction would not occur by the end of the originally specified
time period. The company has not reclassified amounts from accumulated
comprehensive income into earnings over the past nine months, and it does not
expect to reclassify any amounts in the next twelve months.
In most cases, zero hedge ineffectiveness for cash flow hedges is assumed
because the derivative instrument was constructed such that all terms of the
derivative match the hedged risk in the hedged item. As a result, the Company
has recognized an immaterial amount in earnings due to cash flow hedge
ineffectiveness.
The transition adjustment for the adoption of SFAS 133 resulted in a decrease to
other comprehensive income of $36.9 million ($24.0 million after tax)
representing the accumulation in other comprehensive income of the effective
portion of the Company's cash flow hedges as of January 1, 2001. For the nine
months ended September 30, 2001, $101.1 million ($65.7 million after-tax) of
loss representing the effective portion of the change in fair value of
derivative instruments designated as cash flow hedges was added to accumulated
other comprehensive income resulting in an ending balance of $(138.0) million
($(89.7) million after-tax) at September 30, 2001.
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Derivatives Not Designated as Hedging Instruments
The Company attempts to match the timing of when interest rates are committed on
insurance products, residential mortgage loans, and other new investments.
However, timing differences may occur and can expose the Company to fluctuating
interest rates. To offset this risk, the Company uses mortgage-backed forwards,
over-the-counter options on mortgage-backed securities, U.S. Treasury futures
contracts, options on Treasury futures, Treasury rate guarantees, and interest
rate floors to economically hedge anticipated transactions and to manage
interest rate risk. Futures contracts are marked-to-market value and settled
daily, which minimizes the counterparty risk. Forward contracts are
marked-to-market no less than quarterly.
Occasionally, the Company will sell a callable investment-type contract and may
use interest rate swaptions or similar instruments to transform the callable
liability into a fixed term liability. In addition, the Company may sell an
investment-type contract with attributes tied to market indices in which case
the Company writes an equity call option to convert the overall contract into a
fixed rate liability, essentially eliminating the equity component altogether.
Although the above mentioned derivatives are effective hedges from an economic
standpoint, they do not meet the requirements for hedge accounting treatment
under SFAS 133. As such, periodic changes in the market value of these
instruments flow directly into net income. As of September 30, 2001, the impact
to net income as a result of derivatives not receiving hedge accounting was $2.4
million.
2. Comprehensive Income
Comprehensive income for the nine months ended September 30 is as follows:
For the nine
months ended
September 30,
--------------------------
2001 2000
----------- ----------
(in millions)
Comprehensive Income:
Net income................................................ $ 350.2 $ 452.7
Net change in unrealized gains and losses on fixed
maturities, available-for-sale.......................... 731.4 342.9
Net change in unrealized gains and losses on equity
securities, available-for-sale, including seed money
in separate accounts.................................... (38.0) (183.2)
Adjustments for assumed changes in amortization patterns:
Deferred policy acquisition costs....................... (99.8) (58.6)
Unearned revenue reserves............................... 6.2 9.2
Net change in unrealized gains and losses on derivative
instruments............................................. (100.9) 0.9
Net change in unrealized gains and losses on
policyholder dividend obligation........................ (8.8) -
Provision for deferred income taxes........................ (178.3) (40.6)
Change in net foreign currency translation adjustment...... 36.5 27.1
Cumulative effect of accounting change, net of related
income taxes............................................ (14.2) -
----------- ----------
----------- ----------
Comprehensive income....................................... $ 684.3 $ 550.4
=========== ==========
3. Commitments and Contingencies
The Company is a plaintiff or defendant in actions arising out of its
operations. The Company is, from time to time, also involved in various
governmental and administrative proceedings. While the outcome of any pending or
future litigation cannot be predicted, management does not believe that any
pending litigation will have a material adverse effect on the Company's
business, financial condition or results of operations. However, no assurances
can be given that such litigation would not materially and adversely affect the
Company's business, financial condition or results of operations.
Other companies in the life insurance industry have historically been subject to
substantial litigation resulting from claims disputes and other matters. Most
recently, such companies have faced extensive claims, including class-action
lawsuits, alleging improper life insurance sales practices. Negotiated
settlements of such class-action lawsuits have had a material adverse effect on
the business, financial condition and results of operations of certain of these
companies. Principal Life is currently a defendant in two class-action lawsuits
which allege improper sales practices.
In 2000, the Company reached an agreement in principle to settle these two
class-action lawsuits alleging improper sales practices. In April 2001, the
proposed settlement of the class-action lawsuits received court approval. In
agreeing to the settlement, the Company specifically denied any wrongdoing. The
Company has accrued a loss reserve for its best estimate based on information
available. As uncertainties continue to exist in resolving this matter, it is
reasonably possible that, as the actual cost of the claims subject to
alternative dispute resolution becomes available, the final cost of settlement
could exceed the Company's estimate. The range of any additional cost related to
the settlement cannot be presently estimated, however the Company believes the
settlement will not have a material impact on its business, financial condition
or results of operations. A number of persons and entities who were eligible to
be class members have excluded themselves from the class (or "opted out"), as
the law permits them to do. The Company has been notified that some of those who
opted out from the class will file lawsuits and make claims similar to those
addressed by the settlement.
The Company is also subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. The assessments may be partially recovered through a
reduction in future premium taxes in some states. The Company believes such
assessments in excess of amounts accrued would not materially affect its
financial condition or results of operations.
4. Terrorist Attacks in the United States
On September 11, 2001, terrorist attacks in the United States resulted in
significant loss of life and property, as well as interruption of business
activities and an overall disruption of the world economy. The Company accrued
$6.5 million (net of income tax and reinsurance) for potential losses from
individual and group life and disability insurance claims from these events. The
accrual reflects the Company's best estimate of anticipated losses. Because the
Company does not know the full extent of the impact of the events of September
11, it is possible that the Company may incur additional losses. Management has
estimated no material property or investment real estate loss exposures
resulting from these events. However, some of the assets in the Company's
investment portfolio may be adversely affected by the declines in the securities
markets and economic activity that were caused by the terrorist attacks and
possible military action and heightened security measures. In particular, this
may lead to possible write-downs, loss of value or impairments with regard to
securities issued by companies affected by these events.
The continuing impacts of these events on the world economy and financial
markets cannot presently be determined. This creates related uncertainties as to
the future realization of and return on certain invested assets; the impact on
the Company's assumptions in assessing the value of intangibles from prior
acquisitions and the amortization patterns for deferred policy acquisition
costs; and the impact on future operating results, for which estimates cannot
presently be made.
5. Plan of Demutualization
The board of directors of the Company's ultimate parent, Principal Mutual
Holding Company, unanimously adopted the plan of conversion on March 31, 2001.
On July 24, 2001, policyholders entitled to vote approved the plan of
conversion. The public hearing was held on July 25, 2001, and the Insurance
Commissioner of the State of Iowa approved the plan of conversion on August 28,
2001.
6. Subsequent Events
Demutualization and Initial Public Offering
Under the terms of the plan of conversion, effective October 26, 2001, Principal
Mutual Holding Company converted from a mutual insurance holding company to a
stock company. All policyholder membership interests in Principal Mutual Holding
Company were extinguished on that date and eligible policyholders of the mutual
insurance holding company are expected to receive, in aggregate, an estimated
260.6 million shares of common stock, an estimated $1,181.5 million of cash and
an estimated $472.7 million of policy credits as compensation.
After giving effect to the reorganization resulting from the demutualization,
Principal Life now is a direct wholly-owned subsidiary of Principal Financial
Services, Inc., which, in turn, is a direct wholly-owned subsidiary of Principal
Financial Group, Inc.
In addition, on October 26, 2001, Principal Financial Group, Inc. completed its
initial public offering ("IPO") in which it issued 100.0 million shares of
common stock at a price of $18.50 per share. Estimated net proceeds from the IPO
were $1,753.3 million, of which an estimated $59.5 million was retained by
Principal Financial Group, Inc., and an estimated $1,693.8 million was
contributed to the Company to reimburse for fees, cash, and policy credits.
Adoption of Incentive Stock Plans
On May 21, 2001, Principal Financial Group, Inc. approved and adopted the Stock
Incentive Plan, Board of Directors' Stock Plan ("Directors Stock Plan") and
Employee Stock Purchase Plan ("Stock Purchase Plan"). Under the terms of the
Stock Incentive Plan, grants may be non-qualified stock options, incentive stock
options qualifying under Section 422 of the Internal Revenue Code, restricted
stock, restricted stock units and stock appreciation rights. Under the terms of
the Directors' Stock Plan, grants may be non-qualified stock options, restricted
stock and restricted stock units. The maximum number of shares of common stock
that may be issued under the Stock Incentive Plan, together with an excess plan
(Principal Financial Group, Inc.'s non-qualified defined contribution retirement
plan), the Directors Stock Plan, the long-term performance plan and any new plan
awarding Principal Financial Group, Inc.'s common stock, in the five years
following the completion of the IPO, is 6% of the number of shares outstanding
immediately following the completion of the IPO.
In addition, the maximum number of shares of common stock available under the
Stock Purchase Plan is 2% of the total number of shares of common stock that are
outstanding following the IPO of the common stock.
Report of Independent Auditors
The Board of Directors and Stockholder
Principal Life Insurance Company
We have audited the accompanying consolidated statements of financial position
of Principal Life Insurance Company (the Company, an indirect wholly-owned
subsidiary of Principal Mutual Holding Company) as of December 31, 2000 and
1999, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Principal Life
Insurance Company at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernest & Young LLP
Des Moines, Iowa
February 2, 2001, except for Note 17
as to which the date is October 26, 2001
Principal Life Insurance Company
Consolidated Statements of Operations
Year ended December 31
2000 1999 1998
------------------------------------------
(In Millions)
Revenues
Premiums and other considerations $3,929.3 $3,937.6 $3,818.4
Fees and other revenues 1,214.5 1,126.0 978.8
Net investment income 3,115.5 3,045.8 2,933.8
Net realized capital gains 151.8 456.6 465.8
------------------------------------------
------------------------------------------
Total revenues 8,411.1 8,566.0 8,196.8
Expenses
Benefits, claims and settlement expenses 5,147.1 5,260.9 5,089.0
Dividends to policyholders 312.7 304.6 298.7
Operating expenses 2,060.9 1,867.3 2,070.2
------------------------------------------
------------------------------------------
Total expenses 7,520.7 7,432.8 7,457.9
------------------------------------------
Income before income taxes 890.4 1,133.2 738.9
Income taxes 248.8 323.5 43.6
------------------------------------------
------------------------------------------
Net income $ 641.6 $ 809.7 $ 695.3
==========================================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Financial Position
December 31
2000 1999
------------------------------
------------------------------
(In Millions)
Assets
Fixed maturities, available-for-sale $26,142.1 $23,441.4
Equity securities, available-for-sale 710.3 864.2
Mortgage loans 11,325.8 13,332.2
Real estate 1,391.7 2,212.0
Policy loans 803.6 780.5
Other investments 532.8 637.6
------------------------------
Total investments 40,906.3 41,267.9
Cash and cash equivalents 998.6 385.5
Accrued investment income 530.4 471.3
Premiums due and other receivables 253.9 304.3
Deferred policy acquisition costs 1,333.3 1,430.9
Property and equipment 471.2 457.9
Goodwill and other intangibles 94.1 152.5
Mortgage loan servicing rights 1,084.4 1,081.0
Separate account assets 33,180.4 33,306.9
Other assets 1,402.4 457.8
------------------------------
------------------------------
Total assets $80,255.0 $79,316.0
==============================
==============================
Liabilities
Contractholder funds $24,300.2 $24,519.8
Future policy benefits and claims 12,431.7 12,491.2
Other policyholder funds 597.4 676.9
Short-term debt 1,339.9 348.8
Long-term debt 672.3 834.2
Income taxes currently payable 124.5 18.2
Deferred income taxes 399.0 265.3
Separate account liabilities 33,180.4 33,306.9
Other liabilities 1,909.4 1,903.7
------------------------------
------------------------------
Total liabilities 74,954.8 74,365.0
Stockholder's equity
Common stock, par value $1 per share - authorized 5,000,000 shares, issued and
outstanding 2,500,000 shares (wholly owned indirectly by Principal
Mutual Holding Company) 2.5 2.5
Additional paid-in capital 21.0 -
Retained earnings 5,188.6 5,110.6
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities 121.1 (102.1)
Net foreign currency translation adjustment (33.0) (60.0)
------------------------------
------------------------------
Total stockholder's equity 5,300.2 4,951.0
------------------------------
------------------------------
Total liabilities and stockholder's equity $80,255.0 $79,316.0
==============================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity
Net Unrealized
Gains (Losses) Net Foreign Total
Additional on Available- Currency Stock-holder's
Common Paid-In Retained for-Sale Translation Equity
Stock Capital Earnings Securities Adjustment
------------------------------------------------------------------------------------
(In Millions)
Balances at January 1, 1998 $ - $ - $4,257.1 $1,037.5 $(10.6) $5,284.2
Issuance of 2,500,000 shares of common stock
to parent holding company 2.5 - (2.5) - - -
Dividend to parent holding company - - (200.0) - - (200.0)
Comprehensive income:
Net income - - 695.3 - - 695.3
Net change in unrealized gains and losses
on fixed maturities, available-for-sale - - - (203.3) - (203.3)
Net change in unrealized gains and losses
on equity securities, available-for-sale,
including seed money in separate accounts
- - - (291.3) - (291.3)
Adjustments for assumed changes
in amortization patterns:
Deferred policy acquisition costs - - - 37.1 - 37.1
Unearned revenue reserves - - - (3.6) - (3.6)
Provision for deferred income tax benefit - - - 169.5 - 169.5
Change in net foreign currency translation
adjustment - - - - (18.3) (18.3)
-----------
Comprehensive income 385.3
-------------------------------------------------------------------------------
Balances at December 31, 1998 2.5 - 4,749.9 745.9 (28.9) 5,469.4
Dividend to parent holding company - - (449.0) - - (449.0)
Comprehensive loss:
Net income - - 809.7 - - 809.7
Net change in unrealized gains and losses
on fixed maturities, available-for-sale - - - (1,375.1) - (1,375.1)
Net change in unrealized gains and losses
on equity securities, available-for-sale,
including seed money in separate accounts
- - - (142.7) - (142.7)
Adjustments for assumed changes in
amortization patterns:
Deferred policy acquisition costs - - - 246.1 - 246.1
Unearned revenue reserves - - - (29.5) - (29.5)
Provision for deferred income tax benefit - - - 453.2 - 453.2
Change in net foreign currency translation
adjustment - - - - (31.1) (31.1)
-----------
Comprehensive loss (69.4)
-------------------------------------------------------------------------------
Balances at December 31, 1999 2.5 - 5,110.6 (102.1) (60.0) 4,951.0
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity (continued)
Net Unrealized
Gains (Losses) Net Foreign Total
Additional on Available- Currency Stock-holder's
Common Paid-In Retained for-Sale Translation Equity
Stock Capital Earnings Securities Adjustment
------------------------------------------------------------------------------------
(In Millions)
Balances at January 1, 2000 $2.5 $ - $5,110.6 $(102.1) $(60.0) $4,951.0
Reclassification of retained earnings to
additional paid-in capital - 21.0 (21.0) - - -
Dividends to parent holding company - - (542.6) - - (542.6)
Comprehensive income:
Net income - - 641.6 - - 641.6
Net change in unrealized gains and losses
on fixed maturities, available-for-sale - - - 721.9 - 721.9
Net change in unrealized gains and losses
on equity securities, available-for-sale,
including seed money in separate accounts
- - - (270.0) - (270.0)
Adjustments for assumed changes in
amortization patterns:
Deferred policy acquisition costs - - - (122.6) - (122.6)
Unearned revenue reserves - - - 15.2 - 15.2
Provision for deferred income taxes - - - (121.3) - (121.3)
Change in net foreign currency translation
adjustment - - - - 27.0 27.0
-----------
Comprehensive income - - 891.8
----------------------------------------------------------------------------------
Balances at December 31, 2000 $2.5 $21.0 $5,188.6 $ 121.1 $(33.0) $5,300.2
==================================================================================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Cash Flows
Year ended December 31
2000 1999 1998
---------------------------------------------
(In Millions)
Operating activities
Net income $ 641.6 $ 809.7 $ 695.3
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs 238.6 173.7 219.0
Additions to deferred policy acquisition costs (263.6) (253.8) (229.1)
Accrued investment income (59.1) (37.0) 22.9
Premiums due and other receivables (25.0) 102.2 (1.9)
Contractholder and policyholder liabilities and dividends
1,429.6 1,633.0 1,616.1
Current and deferred income taxes 127.9 45.8 (264.8)
Net realized capital gains (151.8) (456.6) (465.8)
Depreciation and amortization expense 71.4 72.5 110.5
Amortization and impairment/recovery of mortgage servicing
rights 157.3 94.4 142.3
Other (367.1) (34.0) 212.1
---------------------------------------------
Net adjustments 1,158.2 1,340.2 1,361.3
---------------------------------------------
Net cash provided by operating activities 1,799.8 2,149.9 2,056.6
Investing activities Available-for-sale securities:
Purchases (12,932.5) (11,510.2) (7,475.1)
Sales 7,312.8 6,947.1 5,857.2
Maturities 2,665.3 2,599.2 1,376.7
Mortgage loans acquired or originated (10,471.3) (16,594.6) (14,261.4)
Mortgage loans sold or repaid 12,026.8 16,361.5 14,477.8
Net change in mortgage servicing rights (182.9) (307.5) (387.4)
Real estate acquired (324.3) (449.7) (436.3)
Real estate sold 795.8 869.8 661.6
Net change in property and equipment (27.2) (19.7) (23.1)
Proceeds from sales of subsidiaries - 41.7 95.5
Purchases of interest in subsidiaries, net of cash acquired
- (12.8) (217.7)
Net change in other investments 187.9 (259.2) (360.9)
---------------------------------------------
Net cash used in investing activities (949.6) (2,334.4) (693.1)
Principal Life Insurance Company
Consolidated Statements of Cash Flows (continued)
Year ended December 31
2000 1999 1998
---------------------------------------------
(In Millions)
Financing activities
Issuance of debt $ 230.4 $ 203.5 $ 243.0
Principal repayments of debt (119.9) (40.2) (50.9)
Proceeds of short-term borrowings 1,373.4 4,952.4 8,627.7
Repayment of short-term borrowings (346.8) (4,895.7) (8,924.3)
Dividends paid to parent holding company (345.5) (354.5) (140.0)
Investment contract deposits 3,982.6 5,325.4 5,854.1
Investment contract withdrawals (5,011.3) (5,081.7) (7,058.3)
---------------------------------------------
Net cash provided by (used in) financing activities (237.1) 109.2 (1,448.7)
---------------------------------------------
Net increase (decrease) in cash and cash equivalents
613.1 (75.3) (85.2)
Cash and cash equivalents at beginning of year 385.5 460.8 546.0
---------------------------------------------
Cash and cash equivalents at end of year $ 998.6 $ 385.5 $ 460.8
=============================================
Schedule of noncash operating and investing activities
Net transfer of noncash assets and liabilities to an
unconsolidated limited liability company in exchange for a
minority interest. $ (255.0)
===============
===============
Dividend of net noncash assets and liabilities of Principal
International de Chile, S.A. and Principal Compania de
Seguros de Vida Chile, S.A. to Principal Financial
Services, Inc. on September 28, 2000
$ (170.6)
===============
Dividend of net noncash assets and liabilities of Princor
Financial Services Corporation to Principal Financial
Services, Inc. on April 1, 1999
$ (12.0)
================
================
Nettransfer of noncash assets and liabilities of Principal Health Care Inc. on
April 1, 1998 in exchange for common shares of Coventry Health Care, Inc.
$ (160.0)
==============
See accompanying notes.
Principal Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2000
1. Nature of Operations and Significant Accounting Policies
Reorganization
Effective July 1, 1998, Principal Mutual Life Insurance Company formed a mutual
insurance holding company ("Principal Mutual Holding Company") and converted to
a stock life insurance company ("Principal Life Insurance Company"). All of the
shares of Principal Life Insurance Company were issued to Principal Mutual
Holding Company through two newly formed intermediate holding companies,
Principal Financial Group, Inc. and Principal Financial Services, Inc. The
reorganization itself did not have a material financial impact on Principal Life
Insurance Company and its consolidated subsidiaries, as the net assets so
transferred to achieve the change in legal organization were accounted for at
historical carrying amounts in a manner similar to that in pooling-of-interests
accounting.
Plan of Demutualization
In 2000, the Board of Directors of Principal Mutual Holding Company approved
management's recommendation to develop a plan of demutualization to convert
Principal Mutual Holding Company into a stock company. Management expects to
complete development of the plan of demutualization in the first half of 2001.
The plan will primarily address how the organization will be restructured,
required approvals, and eligibility for and allocation of policyholder
compensation. The proposed plan, when completed, will be subject to approval by
the Board of Directors, eligible policyholders of Principal Life Insurance
Company and the Insurance Commissioner of the State of Iowa.
Description of Business
Principal Life Insurance Company and its consolidated subsidiaries ("the
Company") is a diversified financial services organization engaged in the
marketing and management of retirement savings, investment and insurance
products and services in the United States and selected international markets
and residential mortgage loan origination and servicing in the United States.
Basis of Presentation
The accompanying consolidated financial statements of the Company and its
majority-owned subsidiaries have been prepared in conformity with accounting
principles generally accepted in the United States ("GAAP"). Less than
majority-owned entities in which the Company has at least a 20% interest are
reported on the equity basis in the consolidated statements of financial
position as other investments. A temporarily controlled subsidiary is carried at
the lower of cost or fair value, and is included in other investments. All
significant intercompany accounts and transactions have been eliminated.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Total assets of the unconsolidated entities amounted to $2,234.9 million at
December 31, 2000 and $2,314.8 million at December 31, 1999. Total revenues of
the unconsolidated entities were $2,127.9 million in 2000, $1,971.5 million in
1999 and $1,749.9 million in 1998. During 2000, 1999 and 1998, the Company
included $31.4 million, $107.7 million and $18.2 million, respectively, in net
investment income representing the Company's share of current year net income of
the unconsolidated entities.
Closed Block
In conjunction with the formation of the mutual insurance holding company, the
Company established a closed block for the benefit of individual participating
dividend-paying policies in force on that date. The closed block was designed to
provide reasonable assurance to policyholders included therein that, after the
Reorganization, assets would be available to maintain dividends in aggregate in
accordance with the 1997 policy dividend scales if the experience underlying
such scales continued. Assets were allocated to the closed block in amounts such
that their cash flows together with anticipated revenues from policies included
in the closed block, were reasonably expected to be sufficient to support such
policies, including provision for payment of claims, certain expenses, charges
and taxes, and to provide for the continuation of dividends in aggregate in
accordance with the 1997 policy dividend scales if the experience underlying
such scales continued, and to allow for appropriate adjustments in such scales
if the experience changes.
Assets allocated to the closed block inure to the benefits of the holders of
policies included in the closed block. Closed block assets and liabilities are
carried on the same basis as similar assets and liabilities held by the Company.
The Company will continue to pay guaranteed benefits under all policies,
including the policies included in the closed block, in accordance with their
terms. If the assets allocated to the closed block, the investment cash flows
from those assets and the revenues from the policies included in the closed
block, including investment income thereon, prove to be insufficient to pay the
benefits guaranteed under the policies included in the closed block, the Company
will be required to make such payments from its general funds. See Note 7.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's consolidated financial statements and
accompanying notes requires management to make estimates and assumptions that
affect the amounts reported and disclosed. These estimates and assumptions could
change in the future as more information becomes known, which could impact the
amounts reported and disclosed in the consolidated financial statements and
accompanying notes.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity date of three months or less when purchased.
Investments
Investments in fixed maturities and equity securities are classified as
available-for-sale and, accordingly, are carried at fair value. (See Note 14 for
policies related to the determination of fair value.) The cost of fixed
maturities is adjusted for amortization of premiums and accrual of discounts,
both computed using the interest method. The cost of fixed maturities and equity
securities is adjusted for declines in value that are other than temporary. For
the loan-backed and structured securities included in the bond portfolio, the
Company recognizes income using a constant effective yield based on currently
anticipated prepayments as determined by broker-dealer surveys or internal
estimates and the estimated lives of the securities.
Real estate investments are reported at cost less accumulated depreciation. The
initial cost bases of properties acquired through loan foreclosures are fair
market values of the properties at the time of foreclosure. Buildings and land
improvements are generally depreciated on the straight-line method over the
estimated useful life of improvements, and tenant improvement costs are
depreciated on the straight-line method over the term of the related lease. The
Company recognizes impairment losses for its properties when indicators of
impairment are present and a property's expected undiscounted cash flows are not
sufficient to recover the property's carrying value. In such cases, the cost
bases of the properties are reduced to fair value. Real estate expected to be
disposed is carried at the lower of cost or fair value, less cost to sell, with
valuation allowances established accordingly and depreciation no longer
recognized. Any impairment losses and any changes in valuation allowances are
reported as net realized capital losses.
Commercial and residential mortgage loans are generally reported at cost
adjusted for amortization of premiums and accrual of discounts, computed using
the interest method, and net of valuation allowances. Any changes in the
valuation allowances are reported as net realized capital gains (losses). The
Company measures impairment based upon the present value of expected cash flows
discounted at the loan's effective interest rate. If foreclosure is probable,
the measurement of any valuation allowance is based upon the fair value of the
collateral. The Company has residential mortgage loans held for sale in the
amount of $84.8 million and $432.1 million and commercial mortgage loans held
for sale in the amount of $520.9 million and $280.1 million at December 31, 2000
and 1999, respectively, which are carried at lower of cost or fair value and
reported as mortgage loans in the statements of financial position.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Net realized capital gains and losses on investments are determined using the
specific identification basis.
Policy loans and other investments, excluding investments in unconsolidated
entities, are primarily reported at cost.
Securitizations
The Company sells commercial mortgage loans on an unconsolidated trust which
then issues mortgage-backed securities. The Company may retain interests in the
loans by purchasing portions of the securities from the issuance. Gain or loss
on the sales of the mortgages depends in part on the previous carrying amounts
of the financial assets involved in the transfer, which is allocated between the
assets sold and the retained interests based on their relative fair value at the
date of transfer. Fair values are determined by quoted market prices of external
buyers of each class of security purchased. The retained interests are
thereafter carried at fair value as is the case of other fixed maturity
investments.
The Company also sells residential mortgage loans in securitization
transactions, and retains servicing rights which are retained interests in the
securitized loans. Gain or loss on the sales of the loans depends in part on the
previous carrying amounts of the financial assets sold and the retained
interests based on their relative fair values at the date of the transfer. To
obtain fair values, quoted market prices are used if available. However, quotes
are generally not available for retained interests, so the Company estimates
fair value based on the present value of the future expected cash flows using
management's best estimates of the key assumptions - prepayment speeds and
option adjusted spreads commensurate with the risks involved.
Derivatives
Derivatives are generally held for purposes other than trading and are primarily
used to hedge or reduce exposure to interest rate and foreign currency risks
associated with assets held or expected to be purchased or sold, and liabilities
incurred or expected to be incurred. Additionally, derivatives are used to
change the characteristics of the Company's asset/liability mix consistent with
the Company's risk management activities.
The Company's risk of loss is typically limited to the fair value of its
derivative instruments and not to the notional or contractual amounts of these
derivatives. Risk arises from changes in the fair value of the underlying
instruments. The Company is also exposed to credit losses in the event of
nonperformance of the counterparties. This credit risk is minimized by
purchasing such agreements from financial institutions with high credit ratings
and by establishing and monitoring exposure limits.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
The Company's use of derivatives is further described in Note 6. The net
interest effect of interest rate and currency swap transactions is recorded as
an adjustment to net investment income or interest expense, as appropriate, over
the periods covered by the agreements. The cost of other derivative contracts is
amortized over the life of the contracts and classified with the results of the
underlying hedged item. Certain contracts are designated as hedges of specific
assets and, to the extent those assets are marked to market, the hedge contracts
are also marked to market and included as an adjustment of the underlying asset
value. Other contracts are designated and accounted for as hedges of certain
liabilities and are not marked to market. Futures contracts and mortgage-backed
forwards are used to hedge anticipated transactions. Futures contracts are
marked to market value and settled daily. However, changes in the market value
of such contracts have not qualified for inclusion in the measurements of
subsequent transactions or represent hedges of items reported at fair value.
Accordingly, such changes in market value are reported in net income in the
period of change.
Hedge accounting is used for derivatives that are specifically designated in
advance as hedges and that reduce the Company's exposure to an indicated risk by
having a high correlation between changes in the value of the derivatives and
the items being hedged at both the inception of the hedge and throughout the
hedge period. Should such criteria not be met or if the hedged items are sold,
terminated or matured, the changes in value of the derivatives are included in
net income.
Contractholder and Policyholder Liabilities
Contractholder and policyholder liabilities (contractholder funds, future policy
benefits and claims, and other policyholder funds) include reserves for
investment contracts and reserves for universal life, limited payment,
participating and traditional life insurance policies. Investment contracts are
contractholders' funds on deposit with the Company and generally include
reserves for pension and annuity contracts. Reserves on investment contracts are
equal to the cumulative deposits less any applicable charges plus credited
interest.
Reserves for universal life insurance contracts are equal to cumulative premiums
less charges plus credited interest which represents the account balances that
accrue to the benefit of the policyholders. Reserves for non-participating term
life insurance contracts are computed on a basis of assumed investment yield,
mortality, morbidity and expenses, including a provision for adverse deviation,
which generally vary by plan, year of issue and policy duration. Investment
yield is based on the Company's experience. Mortality, morbidity and withdrawal
rate assumptions are based on experience of the Company and are periodically
reviewed against both industry standards and experience.
Reserves for participating life insurance contracts are based on the net level
premium reserve for death and endowment policy benefits. This net level premium
reserve is calculated based on dividend fund interest rate and mortality rates
guaranteed in calculating the cash surrender values described in the contract.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Participating business represented approximately 34%, 34% and 36% of the
Company's life insurance in force and 79%, 78% and 81% of the number of life
insurance policies in force at December 31, 2000, 1999 and 1998, respectively.
Participating business represented approximately 64%, 63% and 76% of life
insurance premiums for the years ended December 31, 2000, 1999 and 1998,
respectively.
The amount of dividends to policyholders is approved annually by the Company's
Board of Directors. The amount of dividends to be paid to policyholders is
determined after consideration of several factors including interest, mortality,
morbidity and other expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by the Company. At the end
of the reporting period, the Company establishes a dividend liability for the
pro-rata portion of the dividends expected to be paid on or before the next
policy anniversary date.
Some of the Company's policies and contracts require payment of fees in advance
for services that will be rendered over the estimated lives of the policies and
contracts. These payments are established as unearned revenue reserves upon
receipt and included in other policyholder funds in the consolidated statements
of financial position. These unearned revenue reserves are amortized to
operations over the estimated lives of these policies and contracts in relation
to the emergence of estimated gross profit margins.
The liability for unpaid accident and health claims is an estimate of the
ultimate net cost of reported and unreported losses not yet settled. This
liability is estimated using actuarial analyses and case basis evaluations.
Although considerable variability is inherent in such estimates, the Company
believes that the liability for unpaid claims is adequate. These estimates are
continually reviewed and, as adjustments to this liability become necessary,
such adjustments are reflected in current operations.
Recognition of Premiums and Other Considerations, Fees and Other Revenues and
Benefits
Traditional individual life and health insurance products include those products
with fixed and guaranteed premiums and benefits, and consist principally of
whole life and term life insurance policies. Premiums from these products are
recognized as premium revenue when due.
Immediate annuities with life contingencies include products with fixed and
guaranteed annuity considerations and benefits and consist principally of group
and individual single premium annuities with life contingencies. Annuity
considerations from those products are recognized as revenue when due.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Group life and health insurance premiums are generally recorded as premium
revenue over the term of the coverage. Some group contracts allow for premiums
to be adjusted to reflect emerging experience. Such adjusted premiums are
recognized in the period that the related experience emerges. Fees for contracts
providing claim processing or other administrative services are recorded over
the period the service is provided.
Related policy benefits and expenses for individual and group life and health
insurance products are associated with earned premiums and result in the
recognition of profits over the expected lives of the policies and contracts.
Universal life-type policies are insurance contracts with terms that are not
fixed and guaranteed. Amounts received as payments for such contracts are not
reported as premium revenues. Revenues for universal life-type insurance
contracts consist of policy charges for the cost of insurance, policy initiation
and administration, surrender charges and other fees that have been assessed
against policy account values. Policy benefits and claims that are charged to
expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
Investment contracts do not subject the Company to risks arising from
policyholder mortality or morbidity, and consist primarily of Guaranteed
Investment Contracts ("GICs") and certain deferred annuities. Amounts received
as payments for investment contracts are established as investment contract
liability balances and are not reported as premium revenues. Revenues for
investment contracts consist of investment income and policy administration
charges. Investment contract benefits that are charged to expense include
benefit claims incurred in the period in excess of related investment contract
liability balances and interest credited to investment contract liability
balances.
Fees and other revenues are earned for asset management services provided to
retail and institutional clients based largely upon contractual rates applied to
the market value of the client's portfolio. Additionally, fees and other
revenues are earned for administrative services performed including
recordkeeping and reporting services for retirement savings plans.
Fees and other revenues arising from the residential mortgage banking operations
consist of revenues earned for servicing and originating residential mortgage
loans as well as marketing other products to servicing portfolio customers. Net
revenues are also recognized on the sale of residential mortgage loans and
residential mortgage loan servicing rights.
Deferred Policy Acquisition Costs
Commissions and other costs (underwriting, issuance and agency expenses) that
vary with and are primarily related to the acquisition of new and renewal
insurance policies and investment contract business are capitalized to the
extent recoverable. Acquisition costs that are not deferrable and maintenance
costs are charged to operations as incurred.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Deferred policy acquisition costs for universal life-type insurance contracts
and participating life insurance policies and investment contracts are being
amortized over the lives of the policies and contracts in relation to the
emergence of estimated gross profit margins. This amortization is adjusted
retrospectively when estimates of current or future gross profits and margins to
be realized from a group of products and contracts are revised. The deferred
policy acquisition costs of non-participating term life insurance policies are
being amortized over the premium-paying period of the related policies using
assumptions consistent with those used in computing policyholder liabilities.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs would be written off to the extent
that it is determined that future policy premiums and investment income or gross
profit margins would not be adequate to cover related losses and expenses.
Reinsurance
The Company enters into reinsurance agreements with other companies in the
normal course of business. The Company may assume reinsurance from or cede
reinsurance to other companies. Premiums and expenses are reported net of
reinsurance ceded. The Company is contingently liable with respect to
reinsurance ceded to other companies in the event the reinsurer is unable to
meet the obligations it has assumed. At December 31, 2000, 1999 and 1998,
respectively, the Company had reinsured $13.2 billion, $10.2 billion and $6.9
billion of life insurance in force, representing 9%, 7% and 5% of total net life
insurance in force through a single third-party reinsurer. To minimize the
possibility of losses, the Company evaluates the financial condition of its
reinsurers and continually monitors concentrations of credit risk.
The effect of reinsurance on premiums and other considerations and policy and
contract benefits and changes in reserves is as follows (in millions):
Year ended December 31
2000 1999 1998
------------------------------------------
Premiums and other considerations:
Direct $4,074.8 $3,990.0 $3,799.9
Assumed 24.6 4.1 62.2
Ceded (170.1) (56.5) (43.7)
------------------------------------------
Net premiums and other considerations $3,929.3 $3,937.6 $3,818.4
==========================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Year ended December 31
2000 1999 1998
------------------------------------------
Benefits, claims and settlement expenses:
Direct $5,302.6 $5,296.1 $5,051.5
Assumed 1.9 (1.3) 66.0
Ceded (157.4) (33.9) (28.5)
------------------------------------------
Net benefits, claims and settlement expenses $5,147.1 $5,260.9 $5,089.0
==========================================
Guaranty-fund Assessments
Guaranty-fund assessments are accrued for anticipated assessments, which are
estimated using data available from various industry sources that monitor the
current status of open and closed insolvencies. The Company has also established
an other asset for assessments expected to be recovered through future premium
tax offsets.
Separate Accounts
The separate account assets and liabilities presented in the consolidated
financial statements represent the fair market value of funds that are
separately administered by the Company for contracts with equity, real estate
and fixed-income investments. Generally, the separate account contract owner,
rather than the Company, bears the investment risk of these funds. The separate
account assets are legally segregated and are not subject to claims that arise
out of any other business of the Company. The Company receives a fee for
administrative, maintenance and investment advisory services that is included in
the consolidated statements of operations. Net deposits, net investment income
and realized and unrealized capital gains and losses on the separate accounts
are not reflected in the consolidated statements of operations.
Income Taxes
Principal Mutual Holding Company files a U.S. consolidated income tax return
that includes the Company and all of its qualifying subsidiaries and has a
policy of allocating income tax expenses and benefits to companies in the group
based upon pro rata contribution of taxable income or operating losses. The
Company is taxed at corporate rates on taxable income based on existing tax
laws. Current income taxes are charged or credited to operations based upon
amounts estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income taxes are provided for the tax effect of
temporary differences in the financial reporting and income tax bases of assets
and liabilities and net operating losses using enacted income tax rates and
laws. The effect on deferred tax assets and deferred tax liabilities of a change
in tax rates is recognized in operations in the period in which the change is
enacted.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Foreign Exchange
The Company's foreign subsidiaries' statements of financial position and
operations are translated at the current exchange rates and average exchange
rates for the year, respectively. Resulting translation adjustments for foreign
subsidiaries and certain other transactions are reported as a component of
equity. Other translation adjustments for foreign currency transactions that
affect cash flows are reported in current operations.
Pension and Postretirement Benefits
The Company accounts for its pension benefits and postretirement benefits other
than pension (medical, life insurance and long-term care) using the full accrual
method.
Property and Equipment
Property and equipment includes home office properties, related leasehold
improvements, purchased and internally developed software and other fixed
assets. Property and equipment use is shown in the consolidated statements of
financial position at cost less allowances for accumulated depreciation.
Provisions for depreciation of property and equipment are computed principally
on the straight-line method over the estimated useful lives of the assets.
Property and equipment and related accumulated depreciation are as follows (in
millions):
December 31
2000 1999
---------------------------
Property and equipment $846.3 $777.2
Accumulated depreciation (375.1) (319.3)
---------------------------
Property and equipment, net $471.2 $457.9
===========================
Goodwill and Other Intangibles
Goodwill and other intangibles include the cost of acquired subsidiaries in
excess of the fair value of the net assets (i.e., goodwill) and other intangible
assets which have been recorded in connection with acquisitions. These assets
are amortized on a straight-line basis generally over 10 to 15 years. The
carrying amount of goodwill and other intangibles is reviewed periodically for
indicators of impairment in value, which in the view of management are other
than temporary, including unexpected or adverse changes in the economic or
competitive environments in which the Company operates, profitability analyses
and the fair value of the relevant subsidiary. If facts and circumstances
suggest that a subsidiary's goodwill is impaired, the Company assesses the fair
value of the underlying business and reduces the goodwill to an amount that
results in the book value of the subsidiary approximating fair value.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Goodwill and other intangibles, and related accumulated amortization, are as
follows (in millions):
December 31
2000 1999
---------------------------
Goodwill $137.9 $176.6
Other intangibles 0.3 21.7
---------------------------
138.2 198.3
Accumulated amortization (44.1) (45.8)
---------------------------
Total goodwill and other intangibles, net $ 94.1 $152.5
===========================
Premiums Due and Other Receivables
Premiums due and other receivables include life and health insurance premiums
due, reinsurance recoveries, guaranty funds receivable or on deposit,
receivables from the sale of securities and other receivables.
Mortgage Loan Servicing Rights
Mortgage loan servicing rights represent the cost of purchasing or originating
the right to service mortgage loans. These costs are capitalized and amortized
to operations over the estimated remaining lives of the underlying loans using
the interest method and taking into account appropriate prepayment assumptions.
Capitalized mortgage loan servicing rights are periodically assessed for
impairment, which is recognized in the consolidated statements of operations
during the period in which impairment occurs by establishing a corresponding
valuation allowance. For purposes of performing its impairment evaluation, the
Company stratifies the servicing portfolio on the basis of specified predominant
risk characteristics, including loan type and note rate. A valuation model is
used to determine the fair value at each stratum. Cash flows are calculated
using an internal prepayment model and discounted at a spread to London
Inter-Bank Offer Rates. External valuations are obtained for comparative
purposes. Impairment (recovery) of mortgage loan servicing rights was $(0.5)
million, $(53.2) million and $51.9 million in 2000, 1999 and 1998, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in equity during a period
except those resulting from investments by shareholders and distributions to
shareholders, which would not be applicable to a mutual holding company.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
The following table sets forth the adjustments necessary to avoid duplication of
items that are included as part of net income for a year that had been part of
other comprehensive income in prior years (in millions):
December 31
2000 1999 1998
------------------------------------------
Unrealized gains (losses) on available-for-sale securities
arising during the year $252.6 $(1,037.9) $(531.8)
Adjustment for realized gains (losses) on available-for-sale
securities included in net income
(29.4) 189.9 240.2
------------------------------------------
Unrealized gains (losses) on available-for-sale securities,
as adjusted $223.2 $ (848.0) $(291.6)
==========================================
The above adjustment for net realized gains on available-for-sale securities
included in net income is presented net of tax, related changes in the
amortization patterns of deferred policy acquisition costs and unearned revenue
reserves.
Reclassifications
Reclassifications have been made to the 1998 and 1999 consolidated financial
statements to conform to the 2000 presentation.
Accounting Changes
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). In June 1999, Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 ("SFAS 137") was issued deferring the effective date of SFAS
133 by one year. The new effective date for the Company to adopt SFAS 133 is
January 1, 2001. In June 2000, the FASB issued Statement No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities an amendment of
FASB Statement No. 133 which amended the accounting and reporting standards of
SFAS 133 for certain derivative instruments and certain hedging activities. SFAS
133 will require the Company to include all derivatives in the consolidated
statement of financial position at fair value. The accounting for changes in the
fair value of a derivative depends on its intended use. Changes in derivative
fair values will either be recognized in earnings as offsets to the changes in
fair value of related hedged assets, liabilities and firm commitments or, for
forecasted transactions, deferred and recorded as a component of equity until
the hedged transactions occur and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value will be immediately
recognized in earnings. Derivatives not used in hedging
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
activities must be adjusted to fair value through earnings. The Company adopted
SFAS 133 effective January 1, 2001. The Company evaluated the effect
implementation would have on its reported results of operations and financial
position, based on derivatives holdings and market conditions as of December 31,
2000. That evaluation indicated that the implementation of SFAS 133 would not
have had a material impact on the results of operations and financial position
as of and for the year ended December 31, 2000.
On January 1, 1999, the Company implemented the Statement of Position ("SOP")
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 defines internal use software and when the costs
associated with internal use should be capitalized. The implementation did not
have a material impact on the Company's consolidated financial statements.
In December 2000, the Accounting Standards Executive Committee issued Statement
of Position 00-3, Accounting by Insurance Enterprises for Demutualization and
Formation of Mutual Insurance Holding Companies and for Certain Long-Duration
Participating Contracts. The effective date for adoption of SOP 00-3, with
retroactive application and restatement of all previously issued financial
statements, is for fiscal years beginning after December 15, 2000, however,
early adoption is encouraged by the Accounting Standards Executive Committee.
The Statement provides guidance on accounting by insurance companies for
demutualization and the formation of mutual insurance holding companies. The
Statement specifies that closed block assets, liabilities, revenues and expenses
should be displayed together with all other assets, liabilities, revenues and
expenses of the insurance enterprise based on the nature of the particular item,
with appropriate disclosures relating to the closed block. The Statement also
provides guidance regarding: accounting for predemutualization participating
contracts, establishment of a policyholder dividend obligation for earnings that
relate to the closed block, but do not inure to stockholders, if applicable,
accounting for participating policies sold outside the closed block, accounting
for expenses related to a demutualization and the formation of an MIHC,
accounting for retained earnings and other comprehensive income and accounting
for a distribution from an MIHC to its members. The Company early adopted SOP
00-3 during 2000, and financial statements for all periods presented have been
reclassified to reflect the guidance set forth in SOP 00-3. See Note 7.
2. Related Party Transactions
The Company and its direct parent, Principal Financial Services, Inc.
("Principal Financial Services"), are parties to a cash advance agreement, which
allows those entities to pool their available cash in order to more efficiently
and effectively invest their cash. The cash advance agreement allows (i) the
Company to advance cash to Principal Financial Services in aggregate principal
amounts not to exceed $1.0 billion, with such advanced amounts earning interest
at the daily 30-day "AA" Financial Commercial Paper Discount Rate published by
the Federal Reserve (the "Internal Crediting Rate"); and (ii)
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Related Party Transactions (continued)
Principal Financial Services to advance cash to the Company in aggregate
principal amounts not to exceed $250.0 million, with such advance amounts
earning interest at the Internal Crediting Rate plus 5 basis points to reimburse
Principal Financial Services for the costs incurred in maintaining short-term
investing and borrowing programs. Under this cash advance agreement, the Company
had a receivable from Principal Financial Services of $843.6 million and $284.4
million at December 31, 2000 and 1999, respectively.
3. Mergers, Acquisitions and Divestitures
On December 21, 2000, the Company entered into an agreement to dispose of the
stock of Principal International Espana, S.A. de Seguros de Vida, a subsidiary
in Spain. The transaction is expected to be completed in the first quarter of
2001, after which the Company will have no business operations in Spain. In
2000, the consolidated financial statements included $222.7 million in assets,
$49.4 million in revenues and $(1.2) million of pretax losses related to these
operations.
Beginning January 1, 2000, the Company ceased new sales of Medicare supplement
insurance and effective July 1, 2000, the Company entered into a reinsurance
agreement to reinsure 100% of the Medicare supplement insurance block of
business. Medicare supplement insurance premiums were $98.4 million for the six
months ended June 30, 2000 and $164.6 million for the year ended December 31,
1999.
During 1999, various other acquisitions were made by the Company at purchase
prices aggregating $13.5 million. The acquisitions were all accounted for using
the purchase method and the results of operations of the acquired businesses
have been included in the financial statements of the subsidiaries from the
dates of acquisition. Such acquired companies had total assets at December 31,
1999 and total 1999 revenue of $17.0 million and $11.6 million, respectively.
Effective April 1, 1998, the Company transferred substantially all of its
managed care operations with Coventry Corporation in exchange for a non-majority
ownership position in the resulting entity, Coventry Health Care, Inc. The
Company's investment in Coventry Health Care, Inc. is accounted for using the
equity method. Net equity of the transferred business on April 1, 1998 was
$170.0 million. Consolidated financial results for 1997 included total assets at
December 31, 1997, and total revenues and pretax loss for the year then ended of
approximately $419.0 million, $883.3 million and $(26.1) million, respectively,
for the transferred business. In September 2000, the Company sold a portion of
its equity ownership position, which reduced its ownership to approximately 25%
and resulted in a realized capital gain of $13.9 million, net of tax.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Mergers, Acquisitions and Divestitures (continued)
During 1998, various acquisitions were made by the Company at purchase prices
aggregating $224.5 million. The acquisitions were all accounted for using the
purchase method and the results of operations of the acquired businesses have
been included in the financial statements of the subsidiaries from the dates of
acquisition. Such acquired companies had total assets at December 31, 1998 and
total 1998 revenue of $458.8 million and $58.3 million, respectively.
During 1998, various divestitures were made by the Company at selling prices
aggregating $117.9 million and $15.3 million in net realized capital gains were
realized as a result of these divestitures. In 1997, the financial statements
included $151.6 million in assets, $205.7 million in revenues and $19.8 million
of pretax losses related to these subsidiaries.
Effective July 1, 1998, the Company no longer participates in reinsurance pools
related to the Federal Employee Group Life Insurance and Service Group Life
Insurance programs. In 1997, the premium assumed from these arrangements was
approximately $84.9 million.
4. Investments
Under SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, securities are generally classified as available-for-sale,
held-to-maturity, or trading. The Company has classified its entire fixed
maturities portfolio as available-for-sale, although it is generally the
Company's intent to hold these securities to maturity. The Company has also
classified all equity securities as available-for-sale. Securities classified as
available-for-sale are reported at fair value in the consolidated statements of
financial position with the related unrealized holding gains and losses on such
available-for-sale securities reported as a separate component of equity after
adjustments for related changes in deferred policy acquisition costs, unearned
revenue reserves and deferred income taxes.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
The cost, gross unrealized gains and losses and fair value of fixed maturities
and equity securities available-for-sale as of December 31, 2000 and 1999, are
as follows (in millions):
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------
---------------------------------------------------------------
December 31, 2000 Fixed maturities:
United States Government and
agencies $ 23.2 $ 0.1 $ 0.2 $ 23.1
Foreign governments 692.8 25.0 5.3 712.5
States and political subdivisions 287.4 12.5 4.2 295.7
Corporate - public 8,795.2 216.5 129.3 8,882.4
Corporate - private 9,807.6 208.9 206.0 9,810.5
Mortgage-backed and other asset-backed
securities 6,244.2 208.0 34.3 6,417.9
---------------------------------------------------------------
Total fixed maturities $25,850.4 $671.0 $379.3 $26,142.1
===============================================================
===============================================================
Total equity securities $ 773.9 $190.6 $254.2 $ 710.3
===============================================================
===============================================================
December 31, 1999 Fixed maturities:
United States Government and agencies
$ 163.6 $ - $ 1.7 $ 161.9
Foreign governments 820.1 18.7 15.1 823.7
States and political subdivisions 176.1 1.3 9.9 167.5
Corporate - public 5,425.4 74.4 140.6 5,359.2
Corporate - private 11,474.5 106.7 363.0 11,218.2
Mortgage-backed and other asset-backed
securities 5,832.2 12.6 133.9 5,710.9
---------------------------------------------------------------
Total fixed maturities $23,891.9 $213.7 $664.2 $23,441.4
===============================================================
Total equity securities $ 720.8 $176.3 $ 32.9 $ 864.2
===============================================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
The cost and fair value of fixed maturities available-for-sale at December 31,
2000, by expected maturity, are as follows (in millions):
Cost Fair Value
-------------------------------
-------------------------------
Due in one year or less $ 1,111.7 $ 1,099.4
Due after one year through five years 9,727.5 9,726.9
Due after five years through ten years 5,135.9 5,213.5
Due after ten years 3,631.1 3,684.4
-------------------------------
-------------------------------
19,606.2 19,724.2
Mortgage-backed and other asset-backed securities 6,244.2 6,417.9
-------------------------------
-------------------------------
Total $25,850.4 $26,142.1
===============================
The above summarized activity is based on expected maturities. Actual maturities
may differ because borrowers may have the right to call or pre-pay obligations.
Major categories of net investment income are summarized as follows (in
millions):
Year ended December 31
2000 1999 1998
---------------------------------------------
Fixed maturities, available-for-sale $1,856.5 $1,711.1 $1,587.5
Equity securities, available-for-sale 67.5 46.1 31.6
Mortgage loans 1,005.0 1,111.1 1,143.0
Real estate 171.0 187.5 143.2
Policy loans 55.1 50.2 50.9
Cash and cash equivalents 69.9 20.9 8.8
Other 43.3 43.3 108.1
---------------------------------------------
---------------------------------------------
3,268.3 3,170.2 3,073.1
Less investment expenses (152.8) (124.4) (139.3)
---------------------------------------------
---------------------------------------------
Net investment income $3,115.5 $3,045.8 $2,933.8
=============================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
The major components of net realized capital gains on investments are summarized
as follows (in millions):
Year ended December 31
2000 1999 1998
-------------------------------------------
Fixed maturities, available-for-sale:
Gross gains $ 28.9 $ 31.2 $ 61.4
Gross losses (155.0) (125.4) (33.5)
Equity securities, available-for-sale:
Gross gains 84.2 408.7 341.7
Gross losses (3.9) (25.7) (38.8)
Mortgage loans 8.6 (8.9) 6.3
Real estate 82.3 56.4 120.6
Other 106.7 120.3 8.1
-------------------------------------------
Net realized capital gains $ 151.8 $ 456.6 $465.8
===========================================
Proceeds from sales of investments (excluding call and maturity proceeds) in
fixed maturities were $5.5 billion, $5.5 billion and $2.8 billion in 2000, 1999
and 1998 respectively. Of the 2000, 1999 and 1998 proceeds, $2.6 billion, $3.8
billion and $2.2 billion, respectively, relates to sales of mortgage-backed
securities. The Company actively manages its mortgage-backed securities
portfolio to control prepayment risk. Gross gains of $2.0 million, $2.1 million
and $23.0 million and gross losses of $40.1 million, $60.3 million and $7.0
million in 2000, 1999 and 1998, respectively, were realized on sales of
mortgage-backed securities. At December 31, 1999, the Company had security
purchases payable totaling $21.9 million relating to the purchases of
mortgage-backed securities at forward dates.
The net unrealized gains and losses on investments in fixed maturities and
equity securities available-for-sale is reported as a separate component of
equity, reduced by adjustments to deferred policy acquisition costs and unearned
revenue reserves that would have been required as a charge or credit to
operations had such amounts been realized and a provision for deferred income
taxes. The cumulative amount of net unrealized gains and losses on
available-for-sale securities is as follows (in millions):
December 31
2000 1999
-----------------------------
Net unrealized gains and losses on fixed maturities, available-for-sale $284.3 $(437.6)
Net unrealized gains and losses on equity securities, available-for-sale,
including seed money in separate accounts (63.9) 206.1
Adjustments for assumed changes in amortization patterns:
Deferred policy acquisition costs (43.2) 79.4
Unearned revenue reserves 2.9 (12.3)
Provision for deferred income (taxes) tax benefit (59.0) 62.3
-----------------------------
Net unrealized gains and losses on available-for-sale securities $121.1 $(102.1)
=============================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
The corporate private placement bond portfolio is diversified by issuer and
industry. Restrictive bond covenants are monitored by the Company to regulate
the activities of issuers and control their leveraging capabilities.
Commercial mortgage loans and corporate private placement bonds originated or
acquired by the Company represent its primary areas of credit risk exposure. At
December 31, 2000 and 1999, the commercial mortgage portfolio is diversified by
geographic region and specific collateral property type as follows:
Geographic Distribution Property Type Distribution
December 31 December 31
2000 1999 2000 1999
----------------------- -----------------------
New England 5% 5% Office 30% 31%
Middle Atlantic 15 14 Retail 34 33
East North Central 9 10 Industrial 31 32
West North Central 4 5 Apartments 4 3
South Atlantic 24 25 Hotel 1 1
East South Central 4 3 Mixed use/other 1 1
West South Central 8 7 Valuation allowance (1) (1)
Mountain 6 5
Pacific 26 27
Valuation allowance (1) (1)
Mortgage loans on real estate are considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to contractual terms of the loan agreement.
When the Company determines that a loan is impaired, a provision for loss is
established for the difference between the carrying amount of the mortgage loan
and the estimated value. Estimated value is based on either the present value of
the expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price or fair value of the collateral. The
provision for losses is reported as a net realized capital loss.
Mortgage loans deemed to be uncollectible are charged against the allowance for
losses and subsequent recoveries are credited to the allowance for losses. The
allowance for losses is maintained at a level believed adequate by management to
absorb estimated probable credit losses. Management's periodic evaluation of the
adequacy of the allowance for losses is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of the
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. The evaluation is inherently subjective
as it requires estimating the amounts and timing of future cash flows expected
to be received on impaired loans that may change.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
A summary of the changes in the mortgage loan allowance for losses is as follows
(in millions):
December 31
2000 1999 1998
------------------------------------
Balance at beginning of year $117.8 $113.0 $121.4
Provision for losses 5.4 9.2 7.3
Releases due to write-downs, sales and foreclosures (12.8) (4.4) (15.7)
------------------------------------
Balance at end of year $110.4 $117.8 $113.0
====================================
The Company was servicing approximately 582,000 and 555,000 residential mortgage
loans with aggregate principal balances of approximately $55,987.4 million and
$51,875.5 million at December 31, 2000 and 1999, respectively. In connection
with these mortgage servicing activities, the Company held funds in trust for
others totaling approximately $343.8 million and $334.0 million at December 31,
2000 and 1999, respectively. In connection with its loan administration
activities, the Company advances payments of property taxes and insurance
premiums and also advances principal and interest payments to investors in
advance of collecting funds from specific mortgagors. In addition, the Company
makes certain payments of attorney fees and other costs related to loans in
foreclosure. These amounts receivable are recorded, at cost, as advances on
serviced loans. Amounts advanced are considered in management's evaluation of
the adequacy of the mortgage loan allowance for losses.
In June 2000, the Company's mortgage banking segment created a special purpose
entity to provide an off-balance sheet source of funding for the Company's
residential mortgage loan production. The Company sells residential mortgage
loans to the special purpose entity, where they are warehoused until sold to the
final investor. A maximum of $1 billion may be warehoused by the special purpose
entity at any given time. Through December 31, 2000, $5,340.8 million of loans
had been sold to the special purpose entity and $688.2 million was warehoused by
the special purpose entity at December 31, 2000. The Company remains the
servicer of the mortgage loans and also performs secondary marketing, accounting
and various administrative functions on behalf of the special purpose entity.
The special purpose entity is owned by unaffiliated equity certificate holders
and thus, is not consolidated with the Company.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
In October 2000, the Company's mortgage banking unit also created an
unconsolidated qualifying special purpose entity ("QSPE") to provide an
off-balance sheet source of funding for up to $250 million of qualifying
delinquent mortgage loans. The Company sells qualifying delinquent loans to the
QSPE, which then pledges the loans to secure its borrowings from a Delaware
business trust. The trust funds its loan to the QSPE by selling participations
certifications to commercial paper conduit purchasers. Mortgage loans remain in
the QSPE until they are processed through claims, reinstated or paid off. The
Company is retained as the servicer on the mortgage loans and also performs
accounting and various administrative functions on behalf of the QSPE. The
Company's retained interest in the mortgage loans of $10.2 million is classified
as other assets in the consolidated statements of financial position.
Real estate holdings and related accumulated depreciation are as follows (in
millions):
December 31
2000 1999
----------------------------
Investment real estate $ 813.4 $1,339.6
Accumulated depreciation (117.1) (161.0)
----------------------------
696.3 1,178.6
Properties held for sale 695.4 1,033.4
----------------------------
Real estate, net $1,391.7 $2,212.0
============================
Included in other investments are properties owned jointly with venture partners
and operated by the partners. Joint ventures in which the Company has an
interest have mortgage loans with the Company of $612.1 million and $760.1
million at December 31, 2000 and 1999, respectively. The Company is committed to
providing additional mortgage financing for such joint ventures aggregating
$71.5 million and $76.8 million at December 31, 2000 and 1999, respectively.
5. Securitization Transactions
Commercial Mortgage Loans
During 2000 and 1999, the Company sold commercial mortgage loans in
securitization transactions. In each of those securitizations, the Company
retained primary servicing responsibilities and other interests. The Company
receives annual servicing fees approximating 0.01 percent, which approximates
cost. The investors and the securitization trusts have no recourse to the
Company's other assets for failure of debtors to pay when due. The value of the
Company's retained interests is subject primarily to credit risk.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Securitization Transactions (continued)
In 2000, the Company recognized pretax gains of $0.7 million on the
securitization of commercial mortgage loans.
Key economic assumptions used in measuring the retained interests at the date of
securitization resulting from transactions completed during the year included a
cumulative default rate between five and eight percent. The assumed range of the
loss severity, as a percentage of defaulted loans, was between 13 and 25
percent. The low end of the loss severity range relates to a portfolio of
seasoned loans. The high end of the loss severity range relates to a portfolio
of newly issued loans.
At December 31, 2000, the fair values of retained interests related to the
securitizations of commercial mortgage loans were $65.2 million. Key economic
assumptions and the sensitivity of the current fair values of residual cash
flows were tested to one and two standard deviations from the expected rates.
The changes in the fair values at December 31, 2000 as a result of these
assumptions were not significant.
Residential Mortgage Loans
During 2000 and 1999, the Company sold residential mortgage loans in
securitization transactions. In those securitizations, the Company retained
servicing responsibilities and subordinated interests. The Company receives
annual servicing fees approximating 0.4 percent of the outstanding balance and
rights to future cash flows arising after the investors have received the return
for which they have contracted. The investors have no recourse to the Company's
other assets for failure of debtors to pay when due. The Company's retained
interests are subordinate to the investor's interests. Their value is subject to
prepayment and interest rate risks on the transferred assets.
In 2000, the Company recognized pretax gains of $9.4 million on the
securitization of residential mortgage loans.
The key economic assumptions used in determining the fair value of mortgage
servicing rights at the date of securitization resulting from securitizations
completed in 2000 were as follows:
Weighted average life (years) 6.87
Prepayment speed 11.81%
Static yield to maturity discount rate 10.74%
Prepayment speed is the constant prepayment rate that results in the weighted
average life disclosed above.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Securitization Transactions (continued)
At December 31, 2000, key economic assumptions and the sensitivity of the
current fair value of the mortgage servicing rights to immediate 10 and 20
percent adverse changes in those assumptions are as follows ($ in millions):
Fair value of retained interests $1,193.4
Expected weighted average life (in years) 6.7
Prepayment speed 12.43%
Decrease in fair value of 10% adverse change $ 45.7
Decrease in fair value of 20% adverse change $ 87.1
Static yield to maturity discount rate 9.44%
Decrease in fair value of 10% adverse change $ 73.8
Decrease in fair value of 20% adverse change $ 147.7
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in the
assumption to the change in fair value may not be linear. Also, in the above
table, the effect of a variation in a particular assumption on the fair value of
the servicing rights is calculated independently without changing any other
assumption. In reality, changes in one factor may result in change in another,
which might magnify or counteract the sensitivities. For example, changes in
prepayment speed estimates could result in changes in the discount rate.
The table below summarizes cash flows received from and paid to securitizations
trusts for the year ended December 31, 2000 (in millions):
Proceeds from new securitizations $9,624.5
Servicing fees received 237.5
Other cash flows received on retained interests 29.4
6. Derivatives Held or Issued for Purposes Other Than Trading
The Company uses exchange-traded interest rate futures and mortgage-backed
securities forwards to hedge against interest rate risks. The Company attempts
to match the timing of when interest rates are committed on insurance products
and on new investments. However, timing differences do occur and can expose the
Company to fluctuating interest rates. Interest rate futures and mortgage-backed
securities forwards are used to minimize these risks. In these contracts, the
Company is subject to the risk that the counterparties will fail to perform and
to the risks associated with changes in the value of the underlying securities;
however, such changes in value generally are offset by opposite changes in the
value of the hedged items. Futures contracts are marked to market and settled
daily, which minimizes the counterparty risk. The notional amounts of futures
contracts represent the extent of the Company's involvement.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Derivatives Held or Issued for Purposes Other Than Trading (continued)
The Company uses interest rate swaps to more closely match the interest rate
characteristics of its assets with those of its liabilities. Swaps are used in
asset and liability management to modify duration and match cash flows.
Occasionally, the Company will sell a callable investment-type contract and may
use interest rate swaptions or similar instruments to transform the callable
liability into a fixed term liability. In addition, the Company may sell an
investment-type contract with attributes tied to market indices in which case
the Company uses a call option to transform the liability into a fixed rate
liability. The Company's current credit exposure on swaps is limited to the
value of interest rate swaps that have become favorable to the Company. The
average unexpired terms of the swaps were approximately four years at December
31, 2000 and five years at December 31, 1999. The net amount payable or
receivable from interest rate swaps is accrued as an adjustment to interest
income. The Company's interest rate swap agreements include cross-default
provisions when two or more swaps are transacted with a given counterparty.
The Company enters into currency exchange swap agreements to convert both
principal and interest payments of certain foreign denominated fixed rate assets
and liabilities into U.S. dollar denominated instruments to eliminate the
exposure to future currency volatility on those items. At December 31, 2000, the
Company had various foreign currency exchange agreements with maturities ranging
from 2001 to 2019. At December 31, 1999, such maturities ranged from 2000 to
2018. The average unexpired term of the swaps was approximately five years at
December 31, 2000 and six years at December 31, 1999.
The Company manages the risk on its commercial mortgage loan pipeline by buying
and selling mortgage-backed securities in the forward markets, interest rate
swaps, interest rate futures, and treasury rate guarantees. Such futures
contracts are marked to market and settled daily.
The Company manages risk on its residential mortgage loan pipeline by buying and
selling mortgage-backed securities in the forward markets, over-the-counter
options on mortgage-backed securities, U.S. Treasury futures contracts and
options on Treasury futures contracts. The Company entered into mandatory
forward, option and futures contracts to reduce interest rate risk on certain
mortgage loans held for sale and other commitments. The forward contracts
provide for the delivery of securities at a specified future date at a specified
price or yield. In the event the counterparty is unable to meet its contractual
obligations, the Company may be exposed to the risk of selling mortgage loans at
prevailing market prices. The effect of these contracts was considered in the
lower of cost or market calculation of mortgage loans held for sale.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Derivatives Held or Issued for Purposes Other Than Trading (continued)
The Company has committed to originate approximately $695.2 million and $372.0
million of residential mortgage loans at December 31, 2000 and 1999,
respectively, subject to borrowers meeting the Company's underwriting
guidelines. These commitments call for the Company to fund such loans at a
future date with a specified rate at a specified price. Because the borrowers
are not obligated to close the loans, the Company is exposed to risks that it
may not have sufficient mortgage loans to deliver to its mandatory forward
contracts and, thus, would be obligated to purchase mortgage loans at prevailing
market rates to meet such commitments. Conversely, the Company is exposed to the
risk that more loans than expected will close, and the loans would then be sold
at current market prices.
The Company uses interest rate floors, futures contracts and options on futures
contracts in hedging a portion of its portfolio of mortgage servicing rights
from prepayment risk associated with changes in interest rates. The floors and
contracts provide for the receipt of payments when interest rates are below
predetermined interest rate levels. The premiums paid for floors are included in
other assets in the Company's consolidated statements of financial position.
With regard to its international operations, the Company attempts to conduct
much of its business in the functional currency of the country of operation. At
times, the Company is unable to do so and it uses foreign currency forwards,
foreign currency sways and interest rate swaps to hedge the resulting currency
risk.
The notional amounts and credit exposure of the Company's derivative financial
instruments by type are as follows (in millions):
December 31
2000 1999
--------------------------
Notional amounts of derivative instruments
Foreign currency swaps $ 2,745.0 $ 1,571.5
Interest rate floors 2,450.0 5,550.0
Interest rate swaps 2,391.5 1,298.5
Mortgage-backed forwards and options 1,898.3 1,546.7
Swaptions 697.7 469.7
Call options 30.0 30.0
U.S. Treasury futures 183.2 287.6
Currency forwards 39.4 13.0
Treasury rate guarantees 60.0 -
--------------------------
--------------------------
Total notional amounts at end of year $10,495.1 $10,767.0
==========================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. Derivatives Held or Issued for Purposes Other Than Trading (continued)
December 31
2000 1999
--------------------------
Credit exposure of derivative instruments
Foreign currency swaps $ 45.3 $ 69.2
Interest rate floors 20.0 15.1
Interest rate swaps 14.1 21.6
Mortgage-backed forwards and options - 6.0
Swaptions 11.8 8.7
Call options 12.3 19.0
Currency forwards 5.5 -
--------------------------
--------------------------
Total credit exposure at end of year $109.0 $139.6
==========================
7. Closed Block
Summarized financial information of the Closed Block is as follows (in
millions):
December 31
2000 1999
--------------------------
Assets
Fixed maturities available-for-sale $2,182.2 $1,781.7
Mortgage loans 919.4 1,035.9
Policy loans 770.0 752.1
Other investments 1.3 1.2
---------------------------
Total investments 3,872.9 3,570.9
Cash and cash equivalents 22.7 23.9
Accrued investment income 72.4 62.9
Deferred policy acquisition costs 524.7 639.1
Premiums due and other receivables 14.7 20.6
--------------------------
$4,507.4 $4,317.4
==========================
Liabilities
Future policy benefits and claims $5,032.4 $4,864.3
Other policyholder funds 406.9 405.8
Other liabilities 108.5 124.5
--------------------------
$5,547.8 $5,394.6
==========================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Closed Block (continued)
Year ended December 31
2000 1999
-----------------------------------
Revenues and expenses
Premiums and other considerations $ 752.5 $ 764.4
Net investment income 289.9 269.3
Other income (expense) (5.0) (2.0)
Benefits, claims and settlement expenses (601.2) (614.5)
Dividends to policyholders (307.7) (295.9)
Operating expenses (77.8) (110.6)
-----------------------------------
Contribution from Closed Block (before income taxes) $ 50.7 $ 10.7
===================================
As described in Note 1, the formation of the closed block required an actuarial
calculation including expectations of future earnings related to policies in the
closed block. Subsequent to formation, cumulative actual earnings in excess of
cumulative expected earnings (which are not revised in future periods) are
required to be recorded as a policyholder dividend obligation. From date of
formation through December 31, 2000, cumulative actual earnings have been less
than cumulative expected earnings, and the resulting negative policyholder
dividend obligation balance has not been recognized.
8. Deferred Policy Acquisition Costs
Policy acquisition costs deferred and amortized in 2000, 1999 and 1998 are as
follows (in millions):
December 31
2000 1999 1998
------------------------------------------
Balance at beginning of year $1,430.9 $1,104.7 $1,057.5
Cost deferred during the year 263.6 253.8 229.1
Amortized to expense during the year (238.6) (173.7) (219.0)
Effect of unrealized (gains) losses (122.6) 246.1 37.1
------------------------------------------
Balance at end of year $1,333.3 $1,430.9 $1,104.7
==========================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. Insurance Liabilities
Major components of contractholder funds in the consolidated statements of
financial position, are summarized as follows (in millions):
December 31
2000 1999
---------------------------
Liabilities for investment-type contracts:
Guaranteed investment contracts $14,779.6 $15,935.5
U.S. funding agreements 772.1 742.9
International funding agreements backing
medium-term notes 2,475.3 1,139.0
Other investment-type contracts 2,537.0 3,117.1
---------------------------
Total liabilities for investment-type contracts 20,564.0 20,934.5
Liabilities for individual annuities 2,442.7 2,522.3
Universal life and other reserves 1,293.5 1,063.0
--------------------------
Total contractholder funds $24,300.2 $24,519.8
==========================
The Company's guaranteed investment contracts and funding agreements contain
provisions limiting early surrenders, including penalties for early surrenders
and minimum notice requirements. Put provisions give customers the option to
terminate a contract prior to maturity, provided they give us a minimum notice
period.
The following table presents GAAP reserves for guaranteed investment contracts
and funding agreements by withdrawal provisions (in millions):
December 31, 2000
------------------------------------
------------------------------------
Guaranteed
Investment Funding Agreements
Contracts
------------------------------------
Less than 30 days notice $ - $ -
30 to 89 days notice 284.6 100.6
90 to 180 days notice 456.8 226.2
More than 180 days notice - 150.9
No active put provision* 426.7 -
No put provision 13,611.5 2,769.7
------------------------------------
------------------------------------
Total $14,779.6 $3,247.4
====================================
* Contracts under an initial lock-out period, but which will become puttable
with 90 days notice at some time in the future.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. Insurance Liabilities (continued)
Funding agreements are issued to non-qualified institutional investors both in
domestic and international markets. In late 1998, the Company established a $2.0
billion program, which was expanded to $4.0 billion in 2000, under which an
offshore special purpose entity was created to issue nonrecourse medium-term
notes. Under the program, the proceeds of each note series issuance are used to
purchase a funding agreement from the Company, with the funding agreement so
purchased then used to secure that particular series of notes. The payment terms
of any particular series of notes match the payment terms of the funding
agreement that secures that series. Claims for principal and interest under
those international funding agreements are afforded equal priority to claims of
life insurance and annuity policyholders under insolvency provisions of Iowa
Insurance Laws. During 1999, the Company began issuing international funding
agreements to the offshore special purpose vehicle under that program. The
offshore special purpose vehicle issued medium-term notes to investors in
Europe, Asia and Australia. In general, the medium-term note funding agreements
do not give the contractholder the right to terminate prior to contractually
stated maturity dates, absent the existence of certain circumstances which are
largely within the Company's control. At December 31, 2000, the contractual
maturities were 2002 - $164.3 million; 2003 - $476.6 million; 2004 - $424.9
million; and thereafter - $1,409.5 million.
In February 2001, the Company agreed to issue up to $3.0 billion of funding
agreements under another program to support the prospective issuance by an
unaffiliated entity of medium-term notes in both domestic and international
markets.
Activity in the liability for unpaid accident and health claims, which is
included with future policy benefits and claims in the consolidated statements
of financial position, is summarized as follows (in millions):
December 31
2000 1999 1998
------------------------------------------
Balance at beginning of year $ 721.7 $ 641.4 $ 770.3
Incurred:
Current year 1,788.1 1,872.2 1,921.8
Prior years (17.8) (6.2) (13.8)
------------------------------------------
------------------------------------------
Total incurred 1,770.3 1,866.0 1,908.0
Reclassification for subsidiary merger
(see Note 3) - - 154.9
Payments:
Current year 1,447.3 1,466.3 1,523.1
Prior years 339.7 319.4 358.9
------------------------------------------
Total payments 1,787.0 1,785.7 2,036.9
------------------------------------------
Balance at end of year:
Current year 340.8 405.9 348.7
Prior years 364.2 315.8 292.7
------------------------------------------
------------------------------------------
Total balance at end of year $ 705.0 $ 721.7 $ 641.4
==========================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. Insurance Liabilities (continued)
The activity summary in the liability for unpaid accident and health claims
shows a decrease of $17.8 million, $6.2 million, and $13.8 million to the
December 31, 1999, 1998 and 1997 liability for unpaid accident and health
claims, respectively, arising in prior years. Such liability adjustments, which
affected current operations during 2000, 1999 and 1998, respectively, resulted
from developed claims for prior years being different than were anticipated when
the liabilities for unpaid accident and health claims were originally estimated.
These trends have been considered in establishing the current year liability for
unpaid accident and health claims.
10. Debt
Short-term debt
Short-term debt consists primarily of a payable to Principal Financial Services,
Inc. of $926.9 million. In addition, short-term debt consists of commercial
paper and outstanding balances on credit facilities with various banks. At
December 31, 2000, the Company and certain subsidiaries had credit facilities
with various banks in an aggregate amount of $725.0 million. The credit
facilities may be used for general corporate purposes and also to provide backup
for the Company's commercial paper programs.
Long-term debt
The components of long-term debt as of December 31, 2000 and December 31, 1999
are as follows (in millions):
December 31
2000 1999
------------------------------
7.875% surplus notes payable, due 2024 $198.9 $199.0
8% surplus notes payable, due 2044 99.1 98.8
Non-recourse mortgages and notes payable 149.8 335.2
Other mortgages and notes payable 224.5 201.2
------------------------------
Total long-term debt $672.3 $834.2
==============================
The amounts included above are net of the discount and direct costs associated
with issuing these notes which are being amortized to expense over their
respective terms using the interest method.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. Debt (continued)
On March 10, 1994, the Company issued $300.0 million of surplus notes, including
$200.0 million due March 1, 2024 at a 7.875% annual interest rate and the
remaining $100.0 million due March 1, 2044 at an 8% annual interest rate. No
affiliates of the Company hold any portion of the notes. Each payment of
interest and principal on the notes, however, may be made only with the prior
approval of the Commissioner of Insurance of the State of Iowa (the
"Commissioner") and only to the extent that the Company has sufficient surplus
earnings to make such payments. For each of the years ended December 31, 2000,
1999 and 1998, interest of $24.0 million was approved by the Commissioner, paid
and charged to expense.
Subject to Commissioner approval, the surplus notes due March 1, 2024 may be
redeemed at the Company's election on or after March 1, 2004 in whole or in part
at a redemption price of approximately 103.6% of par. The approximate 3.6%
premium is scheduled to gradually diminish over the following ten years. These
surplus notes may then be redeemed on or after March 1, 2014, at a redemption
price of 100% of the principal amount plus interest accrued to the date of
redemption.
In addition, subject to Commissioner approval, the notes due March 1, 2044 may
be redeemed at the Company's election on or after March 1, 2014, in whole or in
part at a redemption price of approximately 102.3% of par. The approximate 2.3%
premium is scheduled to gradually diminish over the following ten years. These
notes may be redeemed on or after March 1, 2024, at a redemption price of 100%
of the principal amount plus interest accrued to the date of redemption.
The mortgages and other notes payable are financings for real estate
developments. The Company has obtained loans with various lenders to finance
these developments. Outstanding principal balances as of December 31, 2000 range
from $0.5 million to $102.8 million per development with interest rates
generally ranging from 6.9% to 8.6%. Outstanding principal balances as of
December 31, 1999 range from $0.6 million to $38.3 million per development with
interest rates generally ranging from 6.4% to 9.3%.
At December 31, 2000, future annual maturities of the long-term debt are as
follows (in millions):
2001 $118.9
2002 94.6
2003 8.6
2004 2.9
2005 3.0
Thereafter 444.3
--------------
Total future maturities of the long-term debt $672.3
==============
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. Debt (continued)
Cash paid for interest for 2000, 1999 and 1998 was $42.0 million, $95.5 million
and $96.9 million, respectively. These amounts include interest paid on taxes
during these years.
11. Income Taxes
The Company's income tax expense (benefit) is as follows (in millions):
Year ended December 31
2000 1999 1998
-----------------------------------------
Current income taxes:
Federal $195.2 $ 84.1 $ (80.5)
State and foreign 12.2 12.6 10.2
Net realized capital gains 29.6 162.3 106.7
-----------------------------------------
Total current income taxes 237.0 259.0 36.4
Deferred income taxes 11.8 64.5 7.2
-----------------------------------------
Total income taxes $248.8 $323.5 $ 43.6
=========================================
The Company's provision for income taxes may not have the customary relationship
of taxes to income. Differences between the prevailing corporate income tax rate
of 35% times the pre-tax income and the Company's effective tax rate on pre-tax
income are generally due to inherent differences between income for financial
reporting purposes and income for tax purposes, and the establishment of
adequate provisions for any challenges of the tax filings and tax payments to
the various taxing jurisdictions. A reconciliation between the corporate income
tax rate and the effective tax rate is as follows:
Year ended December 31
2000 1999 1998
-------------------------------------
Statutory corporate tax rate 35% 35% 35%
Dividends received deduction (5) (3) (4)
Interest exclusion from taxable income (1) - (1)
Resolution of prior year tax issues - - (20)
Other (1) (3) (4)
-------------------------------------
Effective tax rate 28% 29% 6%
======================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
Significant components of the Company's net deferred income taxes are as follows
(in millions):
December 31
2000 1999
-----------------------------
Deferred income tax assets (liabilities):
Insurance liabilities $ 181.1 $ 241.7
Deferred policy acquisition costs (360.1) (358.7)
Net unrealized losses (gains) on available for sale securities (59.1) 91.4
Mortgage loan servicing rights (206.3) (209.7)
Other 52.3 (24.0)
-----------------------------
$(392.1) $(259.3)
=============================
At December 31, 2000 and 1999, respectively, the Company's net deferred tax
liability is comprised of international net deferred tax assets of $6.9 million
and $6.0 million which have been included in other assets and $399.0 million and
$265.3 million of U.S. net deferred tax liabilities which have been included in
deferred income taxes in the statements of financial position.
The Internal Revenue Service ("the Service") has completed examination of the
U.S. consolidated federal income tax returns of the Company and affiliated
companies for 1996 and prior years. The Service has also begun to examine
returns for 1997 and 1998. The Company believes that there are adequate defenses
against or sufficient provisions for any challenges.
Undistributed earnings of certain foreign subsidiaries are considered
indefinitely reinvested by the Company. A tax liability will be recognized when
the Company expects distribution of earnings in the form of dividends, sale of
the investment or otherwise.
Cash paid for income taxes was $131.9 million in 2000, $275.6 million in 1999
and $300.0 million in 1998.
12. Employee and Agent Benefits
The Company has defined benefit pension plans covering substantially all of its
employees and certain agents. The employees and agents are generally first
eligible for the pension plans when they reach age 21. The pension benefits are
based on the years of service and generally the employee's or agent's average
annual compensation during the last five years of employment. Partial benefit
accrual of pension benefits is recognized from first eligibility until
retirement based on attained service divided by potential service to age 65 with
a minimum of 35 years of potential service. The Company's policy is to fund the
cost of providing pension benefits in the years that the employees and agents
are
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. Employee and Agent Benefits (continued)
providing service to the Company. The Company's funding policy is to deposit an
amount within the range of GAAP net periodic postretirement cost and the sum of
actuarial normal cost and any change in the unfunded accrued liability over a
30-year period as a percentage of compensation.
The Company also provides certain health care, life insurance and long-term care
benefits for retired employees. Substantially all employees are first eligible
for these postretirement benefits when they reach age 57 and have completed ten
years of service with the Company. Partial benefit accrual of these health, life
and long-term care benefits is recognized from the employee's date of hire until
retirement based on attained service divided by potential service to age 65 with
a minimum of 35 years of potential service. The Company's policy is to fund the
cost of providing retiree benefits in the years that the employees are providing
service to the Company. The Company's funding policy is to deposit the actuarial
normal cost and an accrued liability over a 30-year period as a percentage of
compensation.
The plans' combined funded status, reconciled to amounts recognized in the
consolidated statements of financial position and consolidated statements of
operations, is as follows (in millions):
Pension Benefits Other Postretirement Benefits
-------------------------------------- ---------------------------------
-------------------------------------- ---------------------------------
December 31 December 31
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ---------- ---------- -----------
Change in benefit obligation
Benefit obligation at beginning of year $ (732.5) $ (827.3) $(700.5) $(227.9) $(206.3) $(213.7)
Service cost (35.0) (42.2) (33.8) (10.4) (10.9) (12.1)
Interest cost (57.5) (55.1) (49.3) (19.0) (14.1) (15.9)
Actuarial gain (loss) (2.7) 163.4 (79.7) 3.7 (3.5) 20.5
Benefits paid 30.4 28.7 36.0 - 6.9 14.9
Other - - - 31.8 - -
------------ ------------ ------------ ---------- ---------- -----------
Benefit obligation at end of year $ (797.3) $ (732.5) $(827.3) $(221.8) $(227.9) $(206.3)
============ ============ ============ ========== ========== ===========
Change in plan assets
Fair value of plan assets at beginning of year $1,059.8 $ 992.9 $ 980.1 $ 345.5 $ 325.7 $ 300.2
Actual return on plan assets 75.1 90.1 23.3 13.7 5.4 14.6
Employer contribution 10.9 5.5 25.5 18.6 21.3 25.8
Benefits paid (30.4) (28.7) (36.0) (18.0) (6.9) (14.9)
------------ ------------ ------------ ---------- ---------- -----------
Fair value of plan assets at end of year $ 1,115.4 $ 1,059.8 $ 992.9 $ 359.8 $ 345.5 $ 325.7
============ ============ ============ ========== ========== ===========
Funded status $ 318.1 $ 327.3 $ 165.6 $ 138.0 $ 117.6 $ 119.4
Unrecognized net actuarial gain (194.2) (215.5) (38.2) (19.4) (46.3) (70.3)
Unrecognized prior service cost 9.2 10.9 12.6 (29.8) - -
Unamortized transition obligation (asset) (14.2) (25.7) (37.2) 0.3 4.7 7.8
------------ ------------ ------------ ---------- ---------- -----------
Other assets - prepaid benefit cost $ 118.9 $ 97.0 $ 102.8 $ 89.1 $ 76.0 $ 56.9
============ ============ ============ ========== ========== ===========
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. Employee and Agent Benefits (continued)
Pension Benefits Other Postretirement Benefits
-------------------------------------- ---------------------------------
-------------------------------------- ---------------------------------
December 31 December 31
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ---------- ---------- -----------
Weighted-average assumptions as of December 31
Discount rate 8.00% 8.00% 6.75% 8.00% 8.00% 6.75%
Components of net periodic benefit cost
Service cost $ 35.0 $ 42.2 $ 33.8 $ 10.4 $ 10.9 $ 12.1
Interest cost 57.5 55.1 49.3 19.0 14.1 15.9
Expected return on plan assets (81.3) (76.0) (74.4) (25.1) (23.7) (16.1)
Amortization of prior service cost 1.7 1.7 1.7 - - -
Amortization of transition (asset) obligation (11.5) (11.5) (11.5) 2.3 3.7 3.3
Recognized net actuarial loss (gain) (12.5) (0.3) (8.3) (1.1) (2.3) (1.8)
------------ ------------ ------------ ---------- ---------- -----------
Net periodic benefit cost (income) $ (11.1) $ 11.2 $ (9.4) $ 5.5 $ 2.7 $ 13.4
============ ============ ============ ========== ========== ===========
Effective January 1, 2000, the Company amended the method in determining
postretirement health benefit plan and terminated long-term care coverage for
participants retiring on and subsequent to July 1, 2000. The result of these
amendments decreased the postretirement benefit obligation by $31.8 million and
was partially offset by the remaining portion of the original transition
obligation.
For 2000, 1999 and 1998, the expected long-term rates of return on plan assets
for pension benefits were approximately 5% in each of these years (after
estimated income taxes) for those trusts subject to income taxes. For trusts not
subject to income taxes, the expected long-term rates of return on plan assets
were approximately 8.1% in each of the years 2000, 1999 and 1998. The assumed
rate of increase in future compensation levels varies by age for both the
qualified and non-qualified pension plans.
For 2000, 1999 and 1998, the expected long-term rates of return on plan assets
for other post-retirement benefits were approximately 5% to 5.9% in each of
these years (after estimated income taxes) for those trusts subject to income
taxes. For trusts not subject to income taxes, the expected long-term rates of
return on plan assets were approximately 9.3%, 8.0% and 8.1% for 2000, 1999 and
1998, respectively. These rates of return on plan assets vary by benefit type
and employee group.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations starts at 13.9% in 2000 and declines to an
ultimate rate of 6% in 2010. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects (in millions):
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. Employee and Agent Benefits (continued)
1-Percentage-Point 1-Percentage-Point
Increase Decrease
-------------------- -------------------
Effect on total of service and interest cost
components
$ 7.4 $ (5.5)
Effect on accumulated postretirement benefit
obligation
47.7 (38.6)
In addition, the Company has defined contribution plans that are generally
available to all employees and agents who are age 21 or older. Eligible
participants may contribute up to 20% of their compensation, to a maximum of
$10,500 in 2000 and $10,000 in 1999 and 1998. The Company matches the
participant's contribution at a 50% contribution rate up to a maximum Company
contribution of 3% of the participant's compensation in 2000, and 2% of the
participant's compensation in 1999 and 1998. The Company contributed $16.0
million in 2000 and $11.0 million in both 1999 and 1998 to these defined
contribution plans.
13. Other Commitments and Contingencies
The Company, as a lessor, leases industrial, office, retail and other investment
real estate properties under various operating leases. Rental income for all
operating leases totaled $292.5 million in 2000, $356.8 million in 1999 and
$362.4 million in 1998. At December 31, 2000, future minimum annual rental
commitments under these noncancelable operating leases are as follows (in
millions):
Held for Held for Total Rental
Sale Investment Commitments
---------------------------------------------------
2001 $ 85.4 $ 87.8 $ 173.2
2002 80.4 80.4 160.8
2003 72.5 66.2 138.7
2004 63.9 56.0 119.9
2005 54.2 46.1 100.3
Thereafter 168.2 308.6 476.8
---------------------------------------------------
---------------------------------------------------
Total future minimum lease receipts $524.6 $645.1 $1,169.7
===================================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
13. Other Commitments and Contingencies (continued)
The Company, as a lessee, leases office space, data processing equipment,
corporate aircraft and office furniture and equipment under various operating
leases. Rental expense for all operating leases totaled $66.3 million in 2000,
$78.5 million in 1999 and $60.8 million in 1998. At December 31, 2000, future
minimum annual rental commitments under these noncancelable operating leases are
as follows (in millions):
2001 $ 35.6
2002 27.2
2003 19.0
2004 13.2
2005 4.7
Thereafter 9.4
--------
109.1
Less future sublease rental income on these noncancelable leases 1.1
--------
Total future minimum lease payments $108.0
========
The Company is a plaintiff or defendant in actions arising out of its
operations. The Company is, from time to time, also involved in various
governmental and administrative proceedings. While the outcome of any pending or
future litigation cannot be predicted, management does not believe that any
pending litigation will have a material adverse effect on the Company's
business, financial condition or results of operations. However, no assurances
can be given that such litigation would not materially and adversely affect the
Company's business, financial condition or results of operations.
Other companies in the life insurance industry have historically been subject to
substantial litigation resulting from claims disputes and other matters. Most
recently, such companies have faced extensive claims, including class-action
lawsuits, alleging improper life insurance sales practices. Negotiated
settlements of such class-action lawsuits have had a material adverse effect on
the business, financial condition and results of operations of certain of these
companies. The Company is currently a defendant in two class-action lawsuits
which allege improper sales practices.
In 2000, the Company reached an agreement in principle to settle these two
class-action lawsuits alleging improper sales practices. The proposed settlement
is subject to court approval and therefore is not yet final. In agreeing to the
settlement, the Company specifically denied any wrongdoing. The Company has
accrued a loss reserve for its best estimate based on information available. As
uncertainties continue to exist in resolving this matter, it is reasonably
possible that, as the actual cost of the claims subject to alternative dispute
resolution becomes available, the final cost of settlement could exceed the
Company's estimate. However, the range of any additional cost related to the
settlement cannot presently be reasonably estimated.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
13. Other Commitments and Contingencies (continued)
The Company is also subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. The assessments may be partially recovered through a
reduction in future premium taxes in some states. The Company believes such
assessments in excess of amounts accrued would not materially affect its
financial condition or results of operations.
14. Fair Value of Financial Instruments
The following discussion describes the methods and assumptions utilized by the
Company in estimating its fair value disclosures for financial instruments.
Certain financial instruments, particularly policyholder liabilities other than
investment-type contracts, are excluded from these fair value disclosure
requirements. The techniques utilized in estimating the fair values of financial
instruments are affected by the assumptions used, including discount rates and
estimates of the amount and timing of future cash flows. Care should be
exercised in deriving conclusions about the Company's business, its value or
financial position based on the fair value information of financial instruments
presented below. The estimates shown are not necessarily indicative of the
amounts that would be realized in a one-time, current market exchange of all of
the Company's financial instruments.
The Company defines fair value as the quoted market prices for those instruments
that are actively traded in financial markets. In cases where quoted market
prices are not available, fair values are estimated using present value or other
valuation techniques. The fair value estimates are made at a specific point in
time, based on available market information and judgments about the financial
instrument, including estimates of timing, amount of expected future cash flows
and the credit standing of counterparties. Such estimates do not consider the
tax impact of the realization of unrealized gains or losses. In many cases, the
fair value estimates cannot be substantiated by comparison to independent
markets. In addition, the disclosed fair value may not be realized in the
immediate settlement of the financial instrument.
Fair values of public debt and equity securities have been determined by the
Company from public quotations, when available. Private placement securities and
other fixed maturities and equity securities are valued by discounting the
expected total cash flows. Market rates used are applicable to the yield, credit
quality and average maturity of each security.
Fair values of commercial mortgage loans are determined by discounting the
expected total cash flows using market rates that are applicable to the yield,
credit quality and maturity of each loan. Fair values of residential mortgage
loans are determined by a pricing and servicing model using market rates that
are applicable to the yield, rate structure, credit quality, size and maturity
of each loan.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
14. Fair Value of Financial Instruments (continued)
The fair values for assets classified as policy loans, other investments
excluding equity investments in subsidiaries, cash and cash equivalents and
accrued investment income in the accompanying consolidated statements of
financial position approximate their carrying amounts.
Mortgage servicing rights represent the present value of estimated future net
revenues from contractually specified servicing fees. The fair value was
estimated with a valuation model using current prepayment speeds and a market
discount rate.
The fair values of the Company's reserves and liabilities for investment-type
insurance contracts (insurance, annuity and other policy contracts that do not
involve significant mortality or morbidity risk and that are only a portion of
the policyholder liabilities appearing in the consolidated statements of
financial position) are estimated using discounted cash flow analyses (based on
current interest rates being offered for similar contracts with maturities
consistent with those remaining for the investment-type contracts being valued).
The fair values for the Company's insurance contracts (insurance, annuity and
other policy contracts that do involve significant mortality or morbidity risk),
other than investment-type contracts, are not required to be disclosed. The
Company does consider, however, the various insurance and investment risks in
choosing investments for both insurance and investment-type contracts.
Fair values for debt issues are estimated using discounted cash flow analysis
based on the Company's incremental borrowing rate for similar borrowing
arrangements.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 2000 and 1999, are as follows (in millions):
2000 1999
------------------------------ -------------------------------
Carrying Amount Fair Carrying Fair
Value Amount Value
------------------------------ -------------------------------
Assets (liabilities)
Fixed maturities (see Note 4) $ 26,142.1 $ 26,142.1 $ 23,441.4 $ 23,441.4
Equity securities (see Note 4) 710.3 710.3 864.3 864.3
Mortgage loans 11,325.8 11,575.0 13,332.2 13,200.0
Policy loans 803.6 803.6 780.5 780.5
Other investments 413.0 413.0 466.2 466.2
Cash and cash equivalents 998.6 998.6 385.5 385.5
Accrued investment income 530.4 530.4 471.3 471.3
Mortgage loan servicing rights 1,084.4 1,193.5 1,081.0 1,288.0
Investment-type insurance contracts
(22,818.6) (22,688.9) (24,072.5) (23,322.6)
Short-term debt (1,339.9) (1,339.9) (348.8) (348.8)
Long-term debt (672.3) (649.8) (834.2) (767.4)
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. Statutory Insurance Financial Information
The Company prepares statutory financial statements in accordance with the
accounting practices prescribed or permitted by the Insurance Division of the
Department of Commerce of the State of Iowa. Currently "prescribed" statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners ("NAIC") as well as state laws,
regulations and general administrative rules. "Permitted" statutory accounting
practices encompass all accounting practices not so prescribed. The impact of
any permitted accounting practices on statutory surplus is not material. The
accounting practices used to prepare statutory financial statements for
regulatory filings differ in certain instances from GAAP. Prescribed or
permitted statutory accounting practices are used by state insurance departments
to regulate the Company.
The NAIC revised the Accounting Practices and Procedures Manual in a process
referred to as Codification. The revised manual will be effective January 1,
2001. The State of Iowa has adopted the provisions of the revised manual without
modification. The revised manual has changed, to some extent, prescribed
statutory accounting practices and will result in changes to the accounting
practices that the Company uses to prepare its statutory-basis financial
statements.
The Company has identified the following changes in prescribed statutory
accounting practices as those that will have the most significant impact on its
statutory-basis financial statements:
o Deposit-type funds related to both the Company's general account and its
separate accounts will no longer be reported in the statutory statement
of operations as revenues, but rather will be reported directly to an
appropriate policy reserve account, a treatment of deposit-type funds
that is similar to that under GAAP. This will have the effect of
decreasing total statutory revenues and total statutory expenses of the
Company, with no effect to statutory net income or statutory surplus.
o Undistributed income from subsidiaries will no longer be reported as a
component of statutory net investment income, but rather will be
classified as statutory unrealized capital gains and losses. This will
have the effect of decreasing the Company's total statutory revenues,
with a related effect on statutory net income; however, it will have no
effect on statutory surplus.
o Deferred income tax assets and/or liabilities will be recognized. This
will have the effect of increasing the Company's total statutory assets
or statutory liabilities to the extent it has such deferred income tax
assets or liabilities and will have a corresponding effect on the
Company's statutory surplus.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. Statutory Insurance Financial Information (continued)
Management believes the net impact of these changes to the Company's
statutory-basis capital and surplus as of January 1, 2001 will not be
significant. Insurance regulators, accountants, and the insurance industry
continue work to finalize interpretations of the Codification. The ongoing
implementation work could cause changes to final interpretations that could
ultimately have an adverse effect on the Company's statutory surplus or
statutory net income.
Life/Health insurance companies are subject to certain risk-based capital
("RBC") requirements as specified by the NAIC. Under those requirements, the
amount of capital and surplus maintained by a life/health insurance company is
to be determined based on the various risk factors related to it. At December
31, 2000, the Company meets the RBC requirements.
Under Iowa law, the Company may pay stockholder dividends only from the earned
surplus arising from its business and must receive the prior approval of the
Insurance Commissioner of the State of Iowa to pay a stockholder dividend if
such a stockholder dividend would exceed certain statutory limitations. The
current statutory limitation is the greater of 10% of the Company's policyholder
surplus as of the preceding year end or the net gain from operations from the
previous calendar year. Based on this limitation and 2000 statutory results, the
Company could pay approximately $760.9 million in stockholder dividends in 2001
without exceeding the statutory limitation.
In 2000, the Company notified the Insurance Commissioner of the State of Iowa in
advance of all stockholder dividend payments. Total stockholder dividends to its
parent company in 2000 were $542.6 million.
In 1999, the Company notified the Insurance Commissioner of the State of Iowa in
advance of all stockholder dividend payments and received approval for an
extraordinary stockholder dividend of $250.0 million. Total stockholder
dividends to its parent company in 1999 were $449.0 million.
In 1998, the Company notified the Insurance Commissioner of the State of Iowa in
advance of dividend payments. Total stockholder dividends to its parent company
in 1998 were $200.0 million.
The following summary reconciles the Company's assets and stockholder's equity
at December 31, 2000, 1999 and 1998, and net income for the years ended December
31, 2000, 1999 and 1998, in accordance with statutory reporting practices
prescribed or permitted by the Insurance Division of the Department of Commerce
of the State of Iowa with that reported in these consolidated GAAP financial
statements (in millions):
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. Statutory Insurance Financial Information (continued)
Stock-holder's
Equity
Assets Net Income
-----------------------------------------
-----------------------------------------
December 31, 2000
As reported in accordance with statutory accounting practices
- unconsolidated $75,573.4 $3,356.4 $912.6
Additions (deductions):
Unrealized gain on fixed maturities available-for-sale 375.3 375.3 -
Other investment adjustments 2,760.2 590.3 (137.7)
Adjustments to insurance reserves and policyholder dividends
(73.9) (187.0) 26.3
Deferral of policy acquisition costs 1,295.5 1,295.5 8.8
Surplus note reclassification as debt - (298.0) -
Provision for deferred federal income taxes and other tax
reclassifications - (138.3) (26.6)
Other - net 324.5 306.0 (141.8)
-----------------------------------------
-----------------------------------------
As reported in accordance with GAAP $80,255.0 $5,300.2 $641.6
=========================================
December 31, 1999
As reported in accordance with statutory accounting practices
- unconsolidated $76,017.7 $3,151.9 $713.7
Additions (deductions):
Unrealized loss on fixed maturities available-for-sale (356.8) (356.8) -
Other investment adjustments 2,093.3 994.4 9.8
Adjustments to insurance reserves and policyholder dividends
(124.6) (235.5) 15.1
Deferral of policy acquisition costs 1,409.3 1,409.3 68.3
Surplus note reclassification as debt - (297.8) -
Provision for deferred federal income taxes and other tax
reclassifications - 33.0 18.2
Other - net 277.1 252.5 (15.4)
-----------------------------------------
-----------------------------------------
As reported in accordance with GAAP $79,316.0 $4,951.0 $809.7
=========================================
December 31, 1998
As reported in accordance with statutory accounting practices
- unconsolidated $70,096.1 $3,031.5 $511.4
Additions (deductions):
Unrealized gain on fixed maturities available-for-sale 996.9 996.9 -
Other investment adjustments 1,620.7 1,080.9 176.8
Adjustments to insurance reserves and policyholder dividends
(169.5) (191.6) (55.8)
Deferral of policy acquisition costs 1,104.7 1,104.7 -
Surplus note reclassification as debt - (297.8) -
Provision for deferred federal income taxes and other tax
reclassifications - (474.2) 164.9
Other - net 294.4 219.0 (102.0)
-----------------------------------------
-----------------------------------------
As reported in accordance with GAAP $73,943.3 $5,469.4 $695.3
=========================================
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
16. International Operations
The Company's international operations offer a variety of asset management and
asset accumulation products and services for businesses, groups and individuals,
with a focus on retirement savings.
The change in net foreign currency translation reflects an increase of $27.0
million, and decreases of $31.1 million and $18.3 million for the years ended
December 31, 2000, 1999 and 1998, respectively. Aggregate foreign exchange
transaction gains and losses were not material for the years ended December 31,
2000, 1999 and 1998.
The Company evaluates performance of its businesses on operating earnings, which
excludes the effect of net realized capital gains and losses, as adjusted, and
non-recurring events and transactions. Net realized capital gains, as adjusted,
are net of tax, related changes in the amortization pattern of deferred policy
acquisition costs, recognition of front-end fee revenues for sales charges on
pension products and services and net realized capital gains credited to
customers. Operating earnings is determined by adjusting GAAP net income for net
realized capital gains and losses and non-recurring items which management
believes are not indicative of overall operating trends. While these items may
be significant components in understanding and assessing the consolidated
financial performance, management believes the presentation of operating
earnings enhances the understanding of the Company's results of operations by
highlighting earnings attributable to the normal, recurring operations of the
business. However, operating earnings is not a substitute for net income
determined in accordance with GAAP.
In 2000, the Company excluded $101.0 million of non-recurring items, net of tax,
from net income for the presentation of operating earnings. The non-recurring
items included the negative effects of (a) a loss contingency reserve
established for litigation and (b) expenses related to the development of a plan
of demutualization.
In 1998, the Company excluded $107.2 million of non-recurring items, net of tax,
from net income for the presentation of operating earnings. The non-recurring
items included: (1) the positive effects of (a) the Company's release of tax
reserves and related accrued interest and (b) accounting changes by the
Company's international operations and (2) the negative effects of (a) expenses
related to the corporate structure change to a mutual insurance holding company,
see "Reorganization" in Note 1, and related adjustments for changes in
amortization assumptions for deferred policy acquisition costs and (b) a
contribution related to permanent endowment of the Principal Financial Group
Foundation.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
16. International Operations (continued)
The following table summarizes selected information by geographic region as of
or for the year ended December 31 (in millions):
United
States International Consolidated
-------------------------------------------------------
2000
Total revenues $ 8,173.1 $ 238.0 $ 8,411.1
=======================================================
Net income:
Operating earnings (loss) $ 663.9 $ (22.2) $ 641.7
Net realized capital gains (losses), as adjusted
99.3 1.6 100.9
Non-recurring items (101.0) - (101.0)
-------------------------------------------------------
Net income (loss) $ 662.2 $ (20.6) $ 641.6
=======================================================
Assets $79,574.4 $ 680.6 $80,255.0
=======================================================
1999
Total revenues $ 8,293.1 $ 272.9 $ 8,566.0
=======================================================
Net income:
Operating earnings (loss) $ 522.3 $ (33.0) $ 489.3
Net realized capital gains (losses), as adjusted
314.4 6.0 320.4
Non-recurring items - - -
-------------------------------------------------------
Net income (loss) $ 836.7 $ (27.0) $ 809.7
=======================================================
Assets $77,968.5 $1,347.5 $79,316.0
=======================================================
1998
Total revenues $ 7,960.2 $ 236.6 $ 8,196.8
=======================================================
Net income:
Operating earnings (loss) $ 302.8 $ (35.4) $ 267.4
Net realized capital gains (losses), as adjusted
308.7 12.0 320.7
Non-recurring items 93.9 13.3 107.2
-------------------------------------------------------
Net income (loss) $ 705.4 $ (10.1) $ 695.3
=======================================================
Assets $72,703.9 $1,239.4 $73,943.3
=======================================================
17. Subsequent Events
Plan of Demutualization and Initial Public Offering
The board of directors of the Company's ultimate parent, Principal Mutual
Holding Company, unanimously adopted the plan of conversion on March 31, 2001.
On July 24, 2001, policyholders entitled to vote approved the plan of
conversion. The public hearing was held on July 25, 2001, and the Insurance
Commissioner of the State of Iowa approved the plan of conversion on August 28,
2001.
Under the terms of the plan of conversion, effective October 26, 2001, Principal
Mutual Holding Company converted from a mutual insurance holding company to a
stock company. All policyholder membership interests in Principal Mutual Holding
Company were extinguished on that date and eligible policyholders of the mutual
insurance holding company are expected to receive, in aggregate, an estimated
260.6 million shares of common stock, an estimated $1,181.5 million of cash and
an estimated $472.7 million of policy credits as compensation.
After giving effect to the reorganization resulting from the demutualization,
Principal Life now is a direct wholly-owned subsidiary of Principal Financial
Services, Inc., which, in turn, is a direct wholly-owned subsidiary of Principal
Financial Group, Inc.
In addition, on October 26, 2001, Principal Financial Group, Inc. completed its
initial public offering ("IPO") in which it issued 100.0 million shares of
common stock at a price of $18.50 per share. Estimated net proceeds from the IPO
were $1,753.3 million, of which an estimated $59.5 million was retained by
Principal Financial Group, Inc., and an estimated $1,693.8 million was
contributed to the Company to reimburse for fees, cash, and policy credits.
Litigation
In April 2001, the proposed settlement of the class-action lawsuits alleging
improper sales practices received court approval. In agreeing to the settlement,
the Company specifically denied any wrongdoing. The Company has accrued a loss
reserve for its best estimate based on information available. As uncertainties
continue to exist in resolving this matter, it is reasonably possible that, as
the actual cost of the claims subject to alternative dispute resolution becomes
available, the final cost of settlement could exceed the Company's estimate. The
range of any additional cost related to the settlement cannot be presently
estimated, however the Company believes the settlement will not have a material
impact on its business, financial condition or results of operations. A number
of persons and entities who were eligible to be class members have excluded
themselves from the class (or "opted out"), as the law permits them to do. The
Company has been notified that some of those who opted out from the class will
file lawsuits and make claims similar to those addressed by the settlement.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
17. Subsequent Events (continued)
Terrorist Attacks in the United States
On September 11, 2001, terrorist attacks in the United States resulted in
significant loss of life and property, as well as interruption of business
activities and an overall disruption of the world economy. The Company accrued
$6.5 million (net of income tax and reinsurance) for potential losses from
individual and group life and disability insurance claims from these events. The
accrual reflects the Company's best estimate of anticipated losses. Because the
Company does not know the full extent of the impact of the events of September
11, it is possible that the Company may incur additional losses. Management has
estimated no material property or investment real estate loss exposures
resulting from these events. However, some of the assets in the Company's
investment portfolio may be adversely affected by the declines in the securities
markets and economic activity that were caused by the terrorist attacks and
possible military action and heightened security measures. In particular, this
may lead to possible write-downs, loss of value or impairments with regard to
securities issued by companies affected by these events.
The continuing impacts of these events on the world economy and financial
markets cannot presently be determined. This creates related uncertainties as to
the future realization of and return on certain invested assets; the impact on
the Company's assumptions in assessing the value of intangibles from prior
acquisitions and the amortization patterns for deferred policy acquisition
costs; and the impact on future operating results, for which estimates cannot
presently be made.
APPENDIX - A
SAMPLE ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES AND DEATH BENEFITS
The following tables illustrate how the policy value, surrender value and death
proceeds of the Policy may change with the investment experience of the
divisions. The tables show how these amounts in the Policy vary over time if
planned periodic premiums are paid annually and if the investment return of the
divisions were a uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The
death benefits and values would be different from those shown if the return
averaged 0%, 6% or 12%, but fluctuated above and below those averages during the
year. Death benefit options 1, 2 and 3 are illustrated.
The illustrations reflect a hypothetical Policy issued to a 35 year-old male
non-smoker, Preferred class. Illustrations for younger males or for females
would be more favorable than those presented. Illustrations for older males or
smokers would be less favorable.
. Illustrations 1, 3 and 5 reflect current administrative and cost of insurance
charges.
. Illustrations 2, 4 and 6 reflect the guaranteed maximum administration and
cost of insurance charges.
The illustrations reflect all Policy charges including:
. deductions from premiums for sales load and state and federal taxes;
. monthly administration charges;
. cost of insurance charge;
. mortality and expense risks charge; and
. contingent deferred sales load that may be deducted if the Policy was fully
surrendered or if it lapsed.
In addition, the illustrations reflect the average of fees and expenses of the
divisions available through the Policy during the fiscal year ending December
31, 2000. The Manager of certain divisions has agreed to reimburse operating
expenses, if necessary, to limit total operating expenses for those divisions
during the year ending December 31, 2000. More information about the expense
reimbursements can be found in the prospectuses for the underlying mutual funds
which accompany this prospectus. There is no assurance that the fee
reimbursement programs will continue beyond 2001. In the future, fees and
expenses of the divisions may be more or less than those shown. Such changes
would make the operating expenses actually incurred by a division differ from
the average rate used in the illustrations.
The illustrations are based on the assumption that:
. payments are made according to the $3,250 annual target premium schedule;
. no values are allocated to the Fixed Account;
. no changes are made to the death benefit option or face amount;
. no policy loans and/or partial surrenders are made; and
. no riders are in effect.
Upon request, we will prepare a comparable illustration based upon the proposed
insured's actual age, gender, smoking status, risk classification and desired
Policy features. For those illustrations, you have option of selecting which
divisions (and their specific fees and expenses) are used. If no selection is
made, the illustration is run using a hypothetical average.
In advertisements or sales literature for the Policies that include performance
data for one of more of the divisions, we may include policy values, surrender
values and death benefit figures computed using the same methods that were used
in creating the following illustrations. However, the actual average total rate
of return for the specific division(s) will be used instead of the average used
in the following illustrations. This information may be shown in the form of
graphs, charts, tables and examples. It may include data for periods prior to
the offering of the Policy for a division that has had performance during such
prior period (with policy charges assumed to be equal to current charges for any
period(s) prior to the offering of the Policy).
Illustration 1 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $250,000
VUL ACCUMULATOR Death Benefit Option 1
PLANNED PREMIUM $3,250 MALE AGE 35 PREFERRED NON-SMOKER
ASSUMING CURRENT CHARGES
(All States)
- -------------------------------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
-------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 250,000 $ 250,000 $ 250,000
2 6,996 250,000 250,000 250,000
3 10,758 250,000 250,000 250,000
4 14,708 250,000 250,000 250,000
5 18,856 250,000 250,000 250,000
6 23,212 250,000 250,000 250,000
7 27,785 250,000 250,000 250,000
8 32,586 250,000 250,000 250,000
9 37,628 250,000 250,000 250,000
10 42,922 250,000 250,000 250,000
11 48,481 250,000 250,000 250,000
12 54,317 250,000 250,000 250,000
13 60,446 250,000 250,000 250,000
14 66,880 250,000 250,000 250,000
15 73,637 250,000 250,000 250,000
20 112,838 250,000 250,000 269,218
25 162,869 250,000 250,000 409,503
30 226,723 250,000 250,000 644,753
- ------------------------------------------------------------------------------------------------
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 2,272 $ 2,430 $ 2,589
2 6,996 4,668 5,132 5,616
3 10,758 7,001 7,927 8,930
4 14,708 9,269 10,816 12,560
5 18,856 11,473 13,804 16,538
6 23,212 13,718 17,006 21,019
7 27,785 15,923 20,346 25,963
8 32,586 18,086 23,828 31,417
9 37,628 20,207 27,457 37,437
10 42,922 22,291 31,245 44,084
11 48,481 24,456 35,372 51,680
12 54,317 26,594 39,701 60,113
13 60,446 28,702 44,243 69,475
14 66,880 30,781 49,007 79,871
15 73,637 32,834 54,008 91,419
20 112,838 42,689 83,010 171,476
25 162,869 51,452 119,763 305,599
30 226,723 57,884 165,944 528,486
- -----------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 107 $ 265 $ 424
2 6,996 2,503 2,967 3,451
3 10,758 4,836 5,762 6,765
4 14,708 7,104 8,651 10,395
5 18,856 9,308 11,639 14,373
6 23,212 11,656 14,945 18,957
7 27,785 14,067 18,491 24,107
8 32,586 16,539 22,281 29,871
9 37,628 19,073 26,323 36,303
10 42,922 21,672 30,626 43,465
11 48,481 24,456 35,372 51,680
12 54,317 26,594 39,701 60,113
13 60,446 28,702 44,243 69,475
14 66,880 30,781 49,007 79,871
15 73,637 32,834 54,008 91,419
20 112,838 42,689 83,010 171,476
25 162,869 51,452 119,763 305,599
30 226,723 57,884 165,944 528,486
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
Illustration 2 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $250,000
VUL ACCUMULATOR Death Benefit Option 1
PLANNED PREMIUM $3,250 MALE AGE 35 PREFERRED NON-SMOKER
ASSUMING GUARANTEED CHARGES
(All States)
- -----------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
-------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 250,000 $ 250,000 $ 250,000
2 6,996 250,000 250,000 250,000
3 10,758 250,000 250,000 250,000
4 14,708 250,000 250,000 250,000
5 18,856 250,000 250,000 250,000
6 23,212 250,000 250,000 250,000
7 27,785 250,000 250,000 250,000
8 32,586 250,000 250,000 250,000
9 37,628 250,000 250,000 250,000
10 42,922 250,000 250,000 250,000
11 48,481 250,000 250,000 250,000
12 54,317 250,000 250,000 250,000
13 60,446 250,000 250,000 250,000
14 66,880 250,000 250,000 250,000
15 73,637 250,000 250,000 250,000
20 112,838 250,000 250,000 250,000
25 162,869 250,000 250,000 353,943
30 226,723 250,000 250,000 550,986
- ----------------------------------------------------------------------------------------------
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 2,272 $ 2,430 $ 2,589
2 6,996 4,489 4,948 5,425
3 10,758 6,646 7,549 8,530
4 14,708 8,741 10,237 11,927
5 18,856 10,773 13,014 15,648
6 23,212 12,737 15,877 19,720
7 27,785 14,631 18,829 24,179
8 32,586 16,456 21,872 29,065
9 37,628 18,209 25,008 34,421
10 42,922 19,886 28,238 40,296
11 48,481 21,591 31,719 46,974
12 54,317 23,220 35,321 54,343
13 60,446 24,770 39,047 62,483
14 66,880 26,235 42,899 71,478
15 73,637 27,611 46,881 81,427
20 112,838 32,756 68,688 149,781
25 162,869 33,718 93,576 264,136
30 226,723 27,733 121,593 451,628
- -----------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
-----------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 107 $ 265 $ 424
2 6,996 2,324 2,783 3,260
3 10,758 4,481 5,384 6,365
4 14,708 6,576 8,072 9,762
5 18,856 8,608 10,849 13,483
6 23,212 10,675 13,815 17,658
7 27,785 12,776 16,973 22,323
8 32,586 14,910 20,326 27,519
9 37,628 17,075 23,874 33,287
10 42,922 19,267 27,619 39,677
11 48,481 21,591 31,719 46,974
12 54,317 23,220 35,321 54,343
13 60,446 24,770 39,047 62,483
14 66,880 26,235 42,899 71,478
15 73,637 27,611 46,881 81,427
20 112,838 32,756 68,688 149,781
25 162,869 33,718 93,576 264,136
30 226,723 27,733 121,593 451,628
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
Illustration 3 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $250,000
VUL ACCUMULATOR Death Benefit Option 2
PLANNED PREMIUM $3,250 MALE AGE 35 PREFERRED NON-SMOKER
ASSUMING CURRENT CHARGES
(All States)
- ----------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 252,267 $ 252,425 $ 252,583
2 6,996 254,655 255,117 255,599
3 10,758 256,973 257,895 258,894
4 14,708 259,222 260,761 262,494
5 18,856 261,400 263,715 266,427
6 23,212 263,615 266,873 270,847
7 27,785 265,783 270,158 275,712
8 32,586 267,904 273,574 281,065
9 37,628 269,978 277,124 286,956
10 42,922 272,009 280,819 293,442
11 48,481 274,115 284,834 300,837
12 54,317 276,187 289,035 309,023
13 60,446 278,223 293,427 318,084
14 66,880 280,224 298,019 328,115
15 73,637 282,193 302,825 339,223
20 112,838 291,535 330,397 415,461
25 162,869 299,511 364,407 541,997
30 226,723 304,486 404,586 750,407
- --------------------------------------------------------------------------------------------------
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 2,267 $ 2,425 $ 2,583
2 6,996 4,655 5,117 5,599
3 10,758 6,973 7,895 8,894
4 14,708 9,222 10,761 12,494
5 18,856 11,400 13,715 16,427
6 23,212 13,615 16,873 20,847
7 27,785 15,783 20,158 25,712
8 32,586 17,904 23,574 31,065
9 37,628 19,978 27,124 36,956
10 42,922 22,009 30,819 43,442
11 48,481 24,115 34,834 50,837
12 54,317 26,187 39,035 59,023
13 60,446 28,223 43,427 68,084
14 66,880 30,224 48,019 78,115
15 73,637 32,193 52,825 89,223
20 112,838 41,535 80,397 165,461
25 162,869 49,511 114,407 291,997
30 226,723 54,486 154,586 500,407
- ----------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
-----------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 102 $ 260 $ 418
2 6,996 2,490 2,952 3,434
3 10,758 4,808 5,730 6,729
4 14,708 7,057 8,596 10,329
5 18,856 9,235 11,550 14,262
6 23,212 11,553 14,811 18,786
7 27,785 13,927 18,303 23,857
8 32,586 16,357 22,027 29,518
9 37,628 18,844 25,990 35,822
10 42,922 21,390 30,200 42,824
11 48,481 24,115 34,834 50,837
12 54,317 26,187 39,035 59,023
13 60,446 28,223 43,427 68,084
14 66,880 30,224 48,019 78,115
15 73,637 32,193 52,825 89,223
20 112,838 41,535 80,397 165,461
25 162,869 49,511 114,407 291,997
30 226,723 54,486 154,586 500,407
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
Illustration 4 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $250,000
VUL ACCUMULATOR Death Benefit Option 2
PLANNED PREMIUM $3,250 MALE AGE 35 PREFERRED NON-SMOKER
ASSUMING GUARANTEED CHARGES
(All States)
- ----------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $252,267 $ 252,425 $ 252,583
2 6,996 254,476 254,933 255,409
3 10,758 256,619 257,518 258,494
4 14,708 258,695 260,183 261,863
5 18,856 260,703 262,928 265,542
6 23,212 262,637 265,748 269,555
7 27,785 264,495 268,645 273,933
8 32,586 266,276 271,619 278,713
9 37,628 267,976 274,669 283,930
10 42,922 269,591 277,792 289,623
11 48,481 271,223 281,140 296,065
12 54,317 272,768 284,580 303,131
13 60,446 274,221 288,110 310,886
14 66,880 275,575 291,728 319,394
15 73,637 276,825 295,429 328,730
20 112,838 281,039 314,783 390,736
25 162,869 280,372 333,976 488,378
30 226,723 271,939 349,359 641,558
- ---------------------------------------------------------------------------------------
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
----------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 2,267 $ 2,425 $ 2,583
2 6,996 4,476 4,933 5,409
3 10,758 6,619 7,518 8,494
4 14,708 8,695 10,183 11,863
5 18,856 10,703 12,928 15,542
6 23,212 12,637 15,748 19,555
7 27,785 14,495 18,645 23,933
8 32,586 16,276 21,619 28,713
9 37,628 17,976 24,669 33,930
10 42,922 19,591 27,792 39,623
11 48,481 21,223 31,140 46,065
12 54,317 22,768 34,580 53,131
13 60,446 24,221 38,110 60,886
14 66,880 25,575 41,728 69,394
15 73,637 26,825 45,429 78,730
20 112,838 31,039 64,783 140,736
25 162,869 30,372 83,976 238,378
30 226,723 21,939 99,359 391,558
- ------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 102 $ 260 $ 418
2 6,996 2,311 2,768 3,244
3 10,758 4,454 5,353 6,329
4 14,708 6,530 8,018 9,698
5 18,856 8,538 10,763 13,377
6 23,212 10,575 13,686 17,493
7 27,785 12,639 16,790 22,078
8 32,586 14,729 20,073 27,167
9 37,628 16,842 23,535 32,796
10 42,922 18,973 27,173 39,005
11 48,481 21,223 31,140 46,065
12 54,317 22,768 34,580 53,131
13 60,446 24,221 38,110 60,886
14 66,880 25,575 41,728 69,394
15 73,637 26,825 45,429 78,730
20 112,838 31,039 64,783 140,736
25 162,869 30,372 83,976 238,378
30 226,723 21,939 99,359 391,558
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
Illustration 5 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $250,000
VUL ACCUMULATOR Death Benefit Option 3
PLANNED PREMIUM $3,250 MALE AGE 35 PREFERRED NON-SMOKER
ASSUMING CURRENT CHARGES
(All States)
- ----------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $253,250 $ 253,250 $ 253,250
2 6,996 256,500 256,500 256,500
3 10,758 259,750 259,750 259,750
4 14,708 263,000 263,000 263,000
5 18,856 266,250 266,250 266,250
6 23,212 269,500 269,500 269,500
7 27,785 272,750 272,750 272,750
8 32,586 276,000 276,000 276,000
9 37,628 279,250 279,250 279,250
10 42,922 282,500 282,500 282,500
11 48,481 285,750 285,750 285,750
12 54,317 289,000 289,000 289,000
13 60,446 292,250 292,250 292,250
14 66,880 295,500 295,500 295,500
15 73,637 298,750 298,750 298,750
20 112,838 315,000 315,000 315,000
25 162,869 331,250 331,250 400,047
30 226,723 347,500 347,500 630,448
- ----------------------------------------------------------------------------------------------
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
--------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 2,266 $ 2,424 $ 2,583
2 6,996 4,651 5,114 5,597
3 10,758 6,965 7,888 8,889
4 14,708 9,207 10,749 12,486
5 18,856 11,376 13,697 16,419
6 23,212 13,578 16,848 20,839
7 27,785 15,732 20,126 25,708
8 32,586 17,836 23,533 31,070
9 37,628 19,890 27,076 36,977
10 42,922 21,897 30,764 43,490
11 48,481 23,976 34,773 50,924
12 54,317 26,018 38,968 59,167
13 60,446 28,021 43,358 68,307
14 66,880 29,985 47,952 78,444
15 73,637 31,913 52,763 89,692
20 112,838 40,986 80,462 167,472
25 162,869 48,501 114,968 298,542
30 226,723 52,457 156,757 516,761
- --------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
--------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 101 $ 259 $ 418
2 6,996 2,486 2,949 3,432
3 10,758 4,800 5,723 6,724
4 14,708 7,042 8,584 10,321
5 18,856 9,211 11,532 14,254
6 23,212 11,516 14,786 18,777
7 27,785 13,876 18,270 23,853
8 32,586 16,289 21,987 29,524
9 37,628 18,756 25,942 35,843
10 42,922 21,279 30,145 42,872
11 48,481 23,976 34,773 50,924
12 54,317 26,018 38,968 59,167
13 60,446 28,021 43,358 68,307
14 66,880 29,985 47,952 78,444
15 73,637 31,913 52,763 89,692
20 112,838 40,986 80,462 167,472
25 162,869 48,501 114,968 298,542
30 226,723 52,457 156,757 516,761
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
Illustration 6 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $250,000
VUL ACCUMULATOR Death Benefit Option 3
PLANNED PREMIUM $3,250 MALE AGE 35 PREFERRED NON-SMOKER
ASSUMING GUARANTEED CHARGES
(All States)
- ----------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $253,250 $ 253,250 $ 253,250
2 6,996 256,500 256,500 256,500
3 10,758 259,750 259,750 259,750
4 14,708 263,000 263,000 263,000
5 18,856 266,250 266,250 266,250
6 23,212 269,500 269,500 269,500
7 27,785 272,750 272,750 272,750
8 32,586 276,000 276,000 276,000
9 37,628 279,250 279,250 279,250
10 42,922 282,500 282,500 282,500
11 48,481 285,750 285,750 285,750
12 54,317 289,000 289,000 289,000
13 60,446 292,250 292,250 292,250
14 66,880 295,500 295,500 295,500
15 73,637 298,750 298,750 298,750
20 112,838 315,000 315,000 315,000
25 162,869 331,250 331,250 335,950
30 226,723 347,500 347,500 524,123
- -----------------------------------------------------------------------------------------------
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 2,266 $ 2,424 $ 2,583
2 6,996 4,472 4,929 5,406
3 10,758 6,610 7,511 8,489
4 14,708 8,679 10,170 11,854
5 18,856 10,676 12,907 15,529
6 23,212 12,595 15,717 19,539
7 27,785 14,434 18,602 23,918
8 32,586 16,191 21,562 28,701
9 37,628 17,861 24,595 33,927
10 42,922 19,440 27,699 39,639
11 48,481 21,026 31,026 46,113
12 54,317 22,515 34,442 53,232
13 60,446 23,901 37,947 61,066
14 66,880 25,175 41,537 69,691
15 73,637 26,330 45,210 79,193
20 112,838 29,694 64,428 143,553
25 162,869 26,907 83,576 250,709
30 226,723 13,112 99,070 429,609
- ------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.93% Net) (5.07% Net) (11.07% Net)
1 $ 3,413 $ 101 $ 259 $ 418
2 6,996 2,307 2,764 3,241
3 10,758 4,445 5,346 6,324
4 14,708 6,514 8,005 9,689
5 18,856 8,511 10,742 13,364
6 23,212 10,534 13,655 17,478
7 27,785 12,579 16,747 22,062
8 32,586 14,645 20,016 27,155
9 37,628 16,727 23,461 32,793
10 42,922 18,822 27,081 39,021
11 48,481 21,026 31,026 46,113
12 54,317 22,515 34,442 53,232
13 60,446 23,901 37,947 61,066
14 66,880 25,175 41,537 69,691
15 73,637 26,330 45,210 79,193
20 112,838 29,694 64,428 143,553
25 162,869 26,907 83,576 250,709
30 226,723 13,112 99,070 429,609
(1) Assumes net interest of 5% compo
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
APPENDIX B
Target Premiums
Annual per $1,000 Face Amount
Issue Age Male Female Unisex Issue Age Male Female Unisex
- --------- ---- ------ ------ --------- ---- ------ ------
0 2.18 1.74 2.09 43 13.66 10.40 13.01
1 2.18 1.74 2.09 44 14.29 10.88 13.61
2 2.18 1.74 2.09 45 14.91 11.37 14.20
3 2.18 1.74 2.09 46 15.89 11.86 15.08
4 2.18 1.74 2.09 47 16.86 12.35 15.96
5 2.18 1.74 2.09 48 17.84 12.85 16.84
6 2.18 1.74 2.09 49 18.81 13.34 17.72
7 2.18 1.74 2.09 50 19.79 13.83 18.60
8 2.18 1.74 2.09 51 20.77 14.32 19.48
9 2.18 1.74 2.09 52 21.74 14.81 20.35
10 2.18 1.74 2.09 53 22.72 15.30 21.24
11 2.29 1.83 2.20 54 23.69 15.79 22.11
12 2.40 1.91 2.30 55 24.67 16.28 22.99
13 2.51 2.00 2.41 56 25.91 17.56 24.24
14 2.62 2.08 2.51 57 27.16 18.85 25.50
15 2.73 2.17 2.62 58 28.40 20.13 26.75
16 2.96 2.36 2.84 59 29.65 21.42 28.00
17 3.20 2.54 3.07 60 30.89 22.70 29.25
18 3.43 2.73 3.29 61 32.13 23.98 30.50
19 3.67 2.91 3.52 62 33.38 25.27 31.76
20 3.90 3.10 3.74 63 34.62 26.55 33.01
21 3.92 3.11 3.76 64 35.87 27.84 34.26
22 3.94 3.13 3.78 65 37.11 29.12 35.51
23 3.95 3.14 3.79 66 37.47 29.68 35.91
24 3.97 3.16 3.81 67 37.83 30.25 36.31
25 3.99 3.17 3.83 68 38.19 30.81 36.71
26 4.46 3.50 4.27 69 38.55 31.37 37.11
27 4.93 3.84 4.71 70 38.91 31.94 37.52
28 5.39 4.17 5.15 71 39.46 32.50 38.07
29 5.86 4.51 5.59 72 40.02 33.06 38.63
30 6.33 4.84 6.03 73 40.58 33.62 39.19
31 6.80 5.17 6.47 74 41.14 34.19 39.75
32 7.26 5.51 6.91 75 41.70 34.75 40.31
33 7.73 5.84 7.35 76 43.93 36.61 42.47
34 8.19 6.18 7.79 77 46.15 38.46 44.61
35 8.66 6.51 8.23 78 48.38 40.32 46.77
36 9.29 7.00 8.83 79 50.60 42.18 48.92
37 9.91 7.48 9.42 80 52.83 44.04 51.07
38 10.54 7.97 10.03 81 55.05 45.89 53.22
39 11.16 8.45 10.62 82 57.28 47.75 55.37
40 11.79 8.94 11.22 83 59.50 49.61 57.52
41 12.41 9.43 11.81 84 61.73 51.46 59.68
42 13.04 9.91 12.41 85 63.95 53.32 61.82
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter adopted under the authority conferred in that
section.
UNDERTAKING PURSUANT TO RULE 484
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter had been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26 OF THE INVESTMENT COMPANY ACT OF 1940
Principal Life Insurance Company represents the fees and charges deducted under
the Policy, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
Company.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T) This filing is made pursuant to Rules
6c-3 and 6e-3(T) under the Investment Company Act of 1940. Registrant elects to
be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Investment Company Act of
1940, with respect to the Policies described in the prospectus. Registrant makes
the following representations:
1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
2) The level of the mortality and expense risks charge is within the range of
industry practice for comparable contracts.
3) The Registrant has concluded that there is a reasonable likelihood that the
distribution financing arrangement for the Variable Life Separate Account will
benefit the separate account and policyowners, and it will keep and make
available to the Commission on request a memorandum setting forth the basis
for this representation.
4) The Variable Life Separate Account will invest only in management
investment companies which have undertaken to have a board of directors, a
majority of whom are not interested persons of the Company, formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2) above
is based upon an analysis of the mortality and expense risks charges contained
in other variable life insurance policies, including scheduled and flexible
premium products. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the representation in
paragraph (2) above.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
The prospectus, consisting of 61 pages;
The undertaking to file reports;
The undertaking pursuant to Rule 484;
Representations pursuant to Rule 6e-3(T);
The signatures;
Written consents of the following persons:
Ernst & Young LLP
The following exhibits
1. Copies of all exhibits required by paragraph A of the instructions
as to exhibits in Form N-8B-2 are set forth below under
designations based on such instructions
1.A1 Resolution of Executive Committee of Board of Directors of
Principal Life Insurance Company establishing the Variable Life
Separate Account (filed 7/24/01)
1.A3A.a Distribution Agreement between Princor Financial Services
Corporation and Principal Life Insurance Company **
1.A3B.a Form of Selling Agreement*
1.A3B.b Registered Representative Agreement (filed 7/24/01)
1.A3C Schedule of sales commissions*
1.A5.a Form of Policy (filed 7/24/01)
1.A5.a.i Accelerated Benefit Rider (filed 7/24/01)
1.A5.a.ii Accidental Death Benefit Rider (filed 7/24/01)
1.A5.a.iii Accounting Benefit Rider
1.A5.a.iv Aviation Exclusion Rider (filed 7/24/01)
1.A5.a.v Change of Insured
1.A5.a.vi Children Term Insurance Rider (filed 7/24/01)
1.A5.a.vii Cost of Living Increase Rider (filed 7/24/01)
1.A5.a.viii Death Benefit Guarantee Rider (filed 7/24/01)
1.A5.a.ix Extended Coverage Rider (filed 7/24/01)
1.A5.a.x Hazardous Sports Rider (filed 7/24/01)
1.A5.a.xi Salary Increase Rider (filed 7/24/01)
1.A5.a.xii Spouse Term Insurance Rider (filed 7/24/01)
1.A5.a.xiii Supplemental Benefit Rider (filed 7/24/01)
1.A5.a.xiv Waiver of Monthly Policy Charge Rider (filed 7/24/01)
1.A5.a.xv Waiver of Specified Premium Rider (filed 7/24/01)
1.A6.a Articles of Incorporation, as Amended of Principal Life Insurance
Company (filed 7/24/01)
1.A6.b By-laws of Principal Life Insurance Company (filed 7/24/01)
1.A10.a Form of Application (filed 7/24/01)
1.A10.b Form of Conversion Application (filed 7/24/01)
1.A10.c Form of Supplemental Application*
2. Opinion and consent of Karen E. Shaff, Senior Vice President and
General Counsel (filed 7/24/01)
3. Financial Statement Schedules*
4. Not applicable
5. Not applicable
6. Consent of Ernst & Young LLP*
7. Description of Issuance, Transfer and Redemption Procedures
Pursuant to Rule 6e-3(T)(b)(12)(iii)*
8. Powers of Attorney of Directors of Principal Life Insurance
Company (filed 7/24/01)
9. Opinion and Consent of Lisa Butterbaugh (filed 7/24/01)
* Filed herein
** To be filed by Amendment.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the city of Des Moines, and the state of Iowa, on
the 16th day of November, 2001.
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: PRINCIPAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ David J. Drury
------------------
David J. Drury
Chairman and Chief Executive Officer
Attest:
/s/ Joyce N. Hoffman
--------------------
Joyce N. Hoffman
Senior Vice President and
Corporate Secretary
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated
.
SIGNATURE TITLE DATE
/s/ D. J. Drury
- --------------- 11/16/2001
------------
D. J. Drury Chairman and
Chief Executive Officer
/s/ D. C. Cunningham
- -------------------- 11/16/2001
------------
D. C. Cunningham Vice President and
Controller (Principal
Accounting Officer)
/s/ M. H. Gersie
- ---------------- 11/16/2001
------------
M. H. Gersie Senior Vice President
(Principal Financial Officer)
(B. J. Bernard)*
- ---------------- 11/16/2001
------------
B. J. Bernard Director
(J. Carter-Miller)*
- ------------------- 11/16/2001
------------
J. Carter-Miller Director
(C. D. Gelatt, Jr.)*
- -------------------- 11/16/2001
------------
C. D. Gelatt, Jr. Director
(J. B. Griswell)*
- ----------------- 11/16/2001
------------
J. B. Griswell Director
(S. L. Helton)*
- --------------- 11/16/2001
------------
S. L. Helton Director
(C. S. Johnson)*
- ---------------- 11/16/2001
------------
C. S. Johnson Director
(W. T. Kerr)*
- ------------- 11/16/2001
------------
W. T. Kerr Director
(L. Liu)*
-------- 11/16/2001
------------
L. Liu Director
(V. H. Loewenstein)*
- -------------------- 11/16/2001
------------
V. H. Loewenstein Director
(R. D. Pearson)*
- ---------------- 11/16/2001
------------
R. D. Pearson Director
(F. F. Pena)*
------------ 11/16/2001
------------
F. F. Pena Director
(D. M. Stewart)*
- ---------------- 11/16/2001
------------
D. M. Stewart Director
(E. E. Tallett)*
- ---------------- 11/16/2001
------------
E. E. Tallett Director
*By /s/ David J. Drury
------------------
David J. Drury
Chairman and Chief Executive Officer
Pursuant to Powers of Attorney
Previously Filed or Included Herein